The effects of audit review and audit risk on auditors' justifications and judgments

Real-time review, which many major accounting firms have adopted recently, emphasizes the allocation of audit resources based on risk. Real-time review also increases the number of times reviewers evaluate subordinate auditors' judgments and may be influenced by subordinates' persuasion behaviors. Since subordinates may use justifications to persuade a reviewer of the quality of their judgments, this study examined how the expectation of review affected both audit judgments and justifications across different levels of audit risk.; This study used an experiment with a fully crossed 2 (audit review) by 2 (level of audit risk) between-participant design. Audit seniors and managers (n = 112) wrote justifications and made revisions to the hours budgeted to a critical audit area. Results indicate that the expectation of review differentially affected audit judgments and justifications across levels of audit risk. First, when audit risk was high, auditors increased the hours budgeted to a critical audit area more than when audit risk was low, but only when they expected to be reviewed. Second, when auditors increased budgeted hours more, they wrote more complex, less balanced justifications that include more arguments related to audit effectiveness. Third, auditors who expected to be reviewed, but who did not increase the number of hours budgeted to the critical audit area, wrote more complex, balanced justifications with more arguments related to audit efficiency. The study failed to find evidence that the characteristics of reasoning observed in auditors' justifications reflect a cognitive process that mediates the effects of review and risk on audit judgments.; This study adds to an interesting and growing area of accounting research by providing new evidence about the strategic persuasion behaviors subordinates use when they expect to be reviewed. It is crucial to understand these behaviors since they may affect reviewer evaluations of and responses to subordinates' judgments.