Abstract:
This experimental research examines the effect of management’s perspective on auditors’ judgment when they review management discussion and analysis (MD&A). This study predicts that prompting management’s perspective would benefit auditors by enabling them to more accurately review MD&A whether or not the MD&A is materially misstated. Contrary to our expectations, prompting auditors with a management’s perspective will backfire. The results find that auditors prompted by management's perspective are significantly more likely to accept MD&A that has an abnormally positive tone. In other words, auditors are less likely to ask management to alter MD&A that has such abnormally positive language. Management’s perspective will trigger auditors’ pre-existing motivation, making them much more likely to maintain a good relationship with clients to justify a management-preferred conclusion. This study expands the understanding of taking management’s perspective could influence auditors’ judgement when reviewing MD&A. Moreover, the findings of this study highlight the potential bias that comes from prompting auditors to take a management’s perspective.
