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King - THE ACCOUNTING REVIEW Vol 77 No 2 April 2002 pp...

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265 THE ACCOUNTING REVIEW Vol. 77, No. 2 April 2002 pp. 265–284 An Experimental Investigation of Self-Serving Biases in an Auditing Trust Game: The Effect of Group Affiliation Ronald R. King Washington University ABSTRACT: I report the results of an experiment designed to investigate the influence of noncredible communications and group affiliation on auditors’ for- mation of self-serving bias. I find that manager-subjects use noncredible com- munications to induce auditors to develop an unwarranted trust of managers (i.e., a biased judgment). However, the bias is neutralized when auditor- subjects belong to groups that create social pressure to conform to group norms. Thus, my finding calls into question the Bazerman et al. (1997) con- clusion that auditors cannot conduct impartial audits due to self-serving bi- ases resulting from repeated interactions between auditors and their clients. Keywords: self-serving bias; auditor independence; trust; groups. Data Availability: Data are available from the author. [W]e maintain that audit failures are the natural product of the auditor-client relation- ship. Under current institutional arrangements, it is psychologically impossible for au- ditors to maintain their objectivity; cases of audit failure are inevitable, even with the most honest auditors. —Bazerman et al. (1997) Helpful comments were received from Lynnea Brumbaugh-Walter, Bryan Church, John Dickhaut, Nick Dopuch, Mahendra Gupta, Steven Kachelmeier, Kathryn Kadous, Brian Mayhew, Claus Langfred, Bill Messier, Mark Peecher, Bill Rankin, P. K. Sen, Shyam Sunder, Ping Zhou, two anonymous reviewers, seminar participants at Georgia State University, The Ohio State University, University of Illinois Auditing Symposium, Washington University, 2001 Midyear Auditing meetings, and the First Asian Conference on Experimental Business Research held at Hong Kong University of Science and Technology. Research assistance was received from Amy Choy and Jim Holloway. Financial support from the Taylor Experimental Laboratory at the Olin School of Business is gratefully acknowledged. Submitted July 2000 Accepted September 2001
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266 The Accounting Review, April 2002 I. INTRODUCTION I n a prominently cited commentary (Securities and Exchange Commission 2000), Baz- erman et al. (1997) argue that auditors suffer from an unconscious self-serving bias , and thus cannot conduct impartial audits. The bias arises because of auditors’ repeated close interactions with client management and their limited and distant interactions with investors. 1 Unconscious bias is particularly problematic because economic sanctions are less likely to mitigate it. In this paper, I report the results of an experiment designed to investigate the extent to which group affiliation, a noneconomic factor, can reduce self- serving biases in an audit trust game.
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