Why Do Auditors Over-Rely on Weak Analytical Procedures? The Role of Outcome Bias and Insensitivity to Precision

Recent evidence from highly publicized frauds and from the Public Oversight Board’s Panel on Audit Effectiveness (2000) indicates that auditors sometimes over-rely on weak evidence supporting a clean audit opinion. In experiment 1 we examine whether a favorable outcome bias, together with insensitivity to factors relating to the strength of evidence, could lead to over-reliance on weak substantive procedures. In experiment 2 we examine whether an explicit ex ante cue can sensitize auditors to the weaknesses of an unreliable substantive procedure. Our examination is conducted in the context of substantive analytical procedures that are performed to provide evidence during the substantive testing phase of an audit. The first experiment provides evidence that auditors attribute more strength to a weak, aggregate-level analytical procedure that produces an expectation that is not significantly different from the unaudited numbers (i.e., a “favorable ” outcome), than to the same analytical procedure that produces an expectation that is significantly different from the unaudited numbers. Further, auditors in the “favorable outcome ” conditio