Auditor Independence, Conflict of Interest, and the Unconscious Intrusion of Bias

Information about the financial health of public companies provided by auditors ideally allow s investors to make informed decisions and enhances the efficiency of financial market s. However, under the current system auditors are hired and fired by the companies they audit , which introduces incentives for biases that favor the audited companies. Three experim nts demonstrate bias in auditors' judgments, and show that these biases are not easily cor rected because auditors are not fully aware of them. The first experiment demonstrates that he judgments of professional auditors tend to be biased in favor of their clients. The second and third experiments explore more closely the psychological processes underlying the bias. The results suggest that the closeness of the relationship between auditor and client m ay have a particularly strong biasing influence on auditors' private judgments.

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