An examination of factors affecting auditors' hypothesis testing strategies
This study examines the prevalence of confirmatory hypothesis testing strategies among auditors and investigates factors that may affect the employment of such strategies. Two experiments were conducted. Experiment 1 examined the impact of source credibility of inherited hypotheses on auditors' hypothesis testing strategies. Source credibility was manipulated by varying the expertise and bias of the hypothesis source. Experiment 2 examined auditors' hypothesis testing activities when using information stored in memory. Practicing auditors were asked to review internal controls in the sales area of a hypothetical firm and to make an assessment of control risk. The results of both experiments were analyzed using ANOVA and MANOVA procedures.
The results suggest that auditors do not employ confirmatory hypothesis testing strategies. Rather, auditors had a strong tendency to consider negative information to be more relevant than positive information when assessing control risk resulting in the confirmation of negative hypotheses and disconfirmation of positive hypotheses. This tendency persisted regardless of the credibility of the hypothesis source, the direction of the hypothesis, and whether or not the hypothesis was tested from information stored in memory.
The overwhelming focus on negative information suggests that auditors employ a conservatism heuristic in evaluating internal control. This evidence may aid in the development of a model of auditor judgment in that the conservatism heuristic may be central to auditors' decision making processes and may affect the use of other heuristics.