Research shows logic of auditing practices may be influenced by auditor’s mood.
The growing body of research examining the topic of auditor judgment is challenging the assumption that auditing decisions are purely logical. If your auditor has a fleeting irritation you may be ok, but expect your financial statement to suffer if they are in a bad mood.
A study accepted by the American Accounting Association found that auditors’ mood state has an effect on inventory valuation decisions.[i]. The authors found that different mood states can lead to dissimilar judgments about ambiguous tasks, which is unsettling if you subscribe to the belief that people can control their logical thought processes.. This is significant because the audit work environment is complex, pressured, and likely to induce a variety of moods. The results show how sub-conscious emotional processes can alter professional judgment.
Specifically, the study measured “mood state”, as opposed to temporary emotions, and found that negative-mood-state participants were more conservative in their valuations than positive-mood state participants. Negative-mood-state participants were only willing to sign off on inventory valuations 9.5 percent less than the clients’ valuation, while positive-mood state participants allowed valuations just 5.3 percent less than the clients’ valuation. Also, 71.4 percent of positive mood-state participants recommended no material adjustments while in a near reversal, almost 70% percent of neutral-mood participants did recommend these adjustments.
Most interesting are the mechanisms and thinking paths followed in these decision processes. Positive-mood, which spurs greater creativity and the ability to see interconnectedness may be helpful in many contexts but could be damaging to judgment in the audit context. Positive-mood is also associated with positive memory retrieval and positive evaluations, flexibility, and motivation to maintain the positive mood[ii]. In the audit context this can mean avoiding unpleasant confrontations with clients or managers. Positive mood may also be related to less concern with consensus, which is considered a signal of decision quality. Negative-mood, in contrast, is associated with willingness to confront others with negative information, which may be more conducive to an accurate assessment.
So will your financial statements benefit from a well placed compliment to the auditor? Probably not…but if they fought with their spouse this morning you may want to have them come back another day.
[i] Chung, J., Cohen, J., & Monroe, G. (2008). The effect of moods on auditors’ inventory valuation decisions. Auditing: A Journal of Practice and Theory. 27(2) 137-159
[ii] Wegener, D., & Petty, R. (1996). Effects of mood on persuasion processes: Enhancing, reducing, and biasing scrutiny of attitude-relevant information. In Striving and Feeling: Interactions Between Goals and Affect, edited by L.L. Martin, and A. Teser, 329-362. Mahwah, NJ: Lawrence Erlbaum.