This research investigated whether the national culture of auditors affects their judgment processes. This issue is important because auditors' cultural values may influence their perceptions of information and affect decision making (Adler & Ghadar, 1989; Hofstede and Bond, 1984; Laurent, 1983,1986).
The theory that underlies the research is based upon Hofstede's (1980) model of national culture and Hogarth and Einhorn's (1992) model of belief adjustment. Hofstede's dimension of individualism/collectivism was hypothesized to affect the extent to which auditors exhibit independence when assessing audit risk. The belief-adjustment model (BAM) provides a general theory of information integration and effect during the belief-updating process. Auditing students' and auditors' initial beliefs and their subsequent belief revisions in audit group decision making processes have b been examined in the context of the BAM. The group processes of different national cultures have been studied to determine whether differences exist in relation to belief revisions.
In the context of an audit planning task, it was hypothesized that auditing students and auditors from a collectivist culture would be more risk averse than auditing student and auditors from an individualist culture when faced with additional audit evidence that was unfavorable relative to the initial information. On the other hand, in the context of an internal control evaluation task, it was hypothesized that auditing students and auditors from an individualist culture would be less risk averse than auditing students and auditors from a collectivist culture when faced with additional audit evidence that was unfavorable relative to the initial information.
To test the hypotheses, an experiment was conducted whereby students from different national cultures performed audit risk assessment in groups. Thirty groups of students performed an audit planning task. Most groups comprised three students of a single national culture. All students were studying an auditing course and had completed audit planning topics. Twenty-nine groups of students performed an internal control evaluation task. Most groups also comprised three students of a single national culture. All students were studying an auditing course and had completed internal control topics. The students made judgments under different scenarios. Half of the groups undertaking each audit task received initial favorable information followed by relatively unfavorable information. The other half of the groups undertaking each audit task received initial unfavorable information followed by relatively favorable information.
Two groups, each comprising two Australian auditors, and three groups, each comprising three Taiwanese auditors, undertook the same audit planning task as the students. Two groups each again comprising two Australian auditors, and three groups, each comprising three Taiwanese auditors, undertook the same evaluation of internal control task as the students. The results for the auditors were compared with the results for the students to determine whether auditing students appeared to be good proxies for practicing auditors.
All null hypotheses were rejected at five percent significance level for audit planning task. The results of the shift in belief revision when additional information was provided were consistent with the theoretical framework of the BAM. In the context of the model, auditing students and auditors from a collectivist culture were more risk averse compared with auditing students and auditors from an individualist culture when the additional information encountered was unfavorable relative to the initial information. Similarly, auditing students and auditors from a collectivist were less risk averse compared with auditing students and auditors from an individualist culture when additional information encountered was favorable relatively to the initial information.
The BAM predicts an upwards shift in belief revision when additional information is perceived to be favorable relative to the initial information. However, the first internal control experiment with students instead resulted in a downward shift of belief revision. In the context of the BAM, this result means that the manipulation of the strength of the additional information was not adequate to be perceived as favorable relative to the initial information. The same results were obtained when auditors undertook the internal control experiment. In this light, an additional experiment was conducted with students with a slight modification to the additional information in the form of wordings to give a more favorable effect. The result was an upward shifts in the belief revision after the modified additional information was given to the participants. Because almost all the auditors from the same audit firm in Taiwan and Brisbane were used in the audit planning and the first internal control experiment, however, the additional experiment was not conducted with practicing auditors.
The contributions of the research are twofold. First, it extends the BAM to include national-culture attributes. As a result, it provides better insights into the processes that underlie belief revision. Second, it reveals the BAM is sensitive to relative (un)favorable information. If the moderately favorable (unfavorable) information is perceived as being unfavorable (favorable), the predictions of the averaging and summation models are the same. This outcome occurs despite using the same moderately polarized subsequent information with both highly polarized favorable and unfavorable initial information.
Notwithstanding the limitations of the research, the results are believed to be robust and generalizable to other settings, collectivist or individualist cultures, and time periods. Future research might investigate audit judgments by groups comprising different national cultures rather than a single culture. The effects of national culture on audit judgment might also be explored under changes to the order of information integration, variations in the reliability of information, different transaction cycles, different industries, and longer time periods.