Do Individual Risk Attitudes, Experience, and Organizational Culture Influence the Conservatism of Indonesian Auditors?
Abstract
This study examines the effects of individual risk attitudes, professional experiences, and organizational cultures on auditor conservatism in Indonesia. On the basis of a factorial survey involving 153 auditors in three major cities in Indonesia (Jakarta, Surabaya, and Denpasar), this study finds strong evidence that, compared with others, auditors with a lower tendency to take risks and those who have less professional experience tend to be more conservative when performing audit tasks. Nonetheless, this study does not find evidence of the influence of organizational culture on auditor conservatism. Overall, the findings of this study could be of interest to professional associations, regulatory bodies, and other policymakers in Indonesia and other countries as they attempt to constrain aggressive reporting through high-quality independent audits by public accountants in their jurisdictions.
Keywords: Auditor conservatism, risk attitude, experience, organisational culture, auditing standards
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References
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Alderman, J. (2017). Does auditor gender influence auditor liability? Exploring the impact of the crime congruency effect on jurors’ perceptions of auditor negligence. Advances in Accounting, 38, 75–87.
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Chen, F., Hou, Y., Richardson, G., & Ye, M. (2018). Auditor experience and the timeliness of litigation loss contingency disclosures. Contemporary Accounting Research, 35(2), 956–979.
Chow, C. W., Harrison, G. L., McKinnon, J. L., & Wu, A. (2002). The organizational culture of public accounting firms: Evidence from Taiwanese local and US affiliated firms. Accounting, Organizations and Society, 27(4–5), 347–360.
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Elshafie, E. (2016). Determinants and consequences of auditor conservatism. Journal of Accounting, Ethics and Public Policy, 17(4), 831–876.
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Gürdal, M. Y., Kuzubaş, T. U., & Saltoğlu, B. (2017). Measures of individual risk attitudes and portfolio choice: Evidence from pension participants. Journal of Economic Psychology, 62, 186–203.
Hardies, K., Breesch, D., & Branson, J. (2012). Male and female auditors’ overconfidence. Managerial Auditing Journal, 27(1), 105–118.
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Kim, J. B., Chung, R., & Firth, M. (2003). Auditor conservatism, asymmetric monitoring, and earnings management. Contemporary Accounting Research, 20(2), 323–359.
Law, P. (2008). An empirical comparison of non-Big 4 and Big 4 auditors’ perceptions of auditor independence. Managerial Auditing Journal, 23(9), 917–934.
Lee, P. J., Taylor, S. J., & Taylor, S. L. (2006). Auditor conservatism and audit quality: Evidence from IPO earnings forecasts. International Journal of Auditing, 10(3), 183–199.
Lennox, C. S., & Kausar, A. (2017). Estimation risk and auditor conservatism. Review of Accounting Studies, 22(1), 185–216.
Lu, T., & Sapra, H. (2009). Auditor conservatism and investment efficiency. The Accounting Review, 84(6), 1933–1958.
Maart-Noelck, S. C., & Musshoff, O. (2014). Measuring the risk attitude of decision-makers: Are there differences between groups of methods and persons? The Australian Journal of Agricultural and Resource Economics, 58(3), 336–352.
Mactavish, C., McCracken, S., & Schmidt, R. N. (2018). External auditors’ judgment and decision making: An audit process task analysis. Accounting Perspectives, 17(3), 387–426.
Maradona, A. F., & Chand, P. (2018). The pathway of transition to International Financial Reporting Standards (IFRS) in developing countries: Evidence from Indonesia. Journal of International Accounting, Auditing and Taxation, 30, 57–68.
Markiewicz, Ł., & E. U. Weber. (2013). DOSPERT’s gambling risk-taking propensity scale predicts excessive stock trading. Journal of Behavioral Finance, 14(1), 65–78.
Nobes, C. (2005). Rules-based standards and the lack of principles in accounting. Accounting Horizons, 19(1), 25–34.
Ojiako, U., Chipulu, M., Gardiner, P., Williams, T., Mota, C., Maguire, S., Shou, Y., & Stamati, T. (2014). Effect of project role, age and gender differences on the formation and revision of project decision judgements. International Journal of Project Management, 32(4), 556–567.
Pflugrath, G., Martinov-Bennie, N., & Chen, L. (2007). The impact of codes of ethics and experience on auditor judgments. Managerial Auditing Journal, 22(6), 566–589.
Radebaugh, L. H., & S. J. Gray. 2002. International Accounting and Multinational Enterprises (5th ed.). New York, NY: John Wiley & Sons.
Rolison, J. J., Y. Hanoch, S. Wood, & P.-J. Liu. (2013). Risk-taking differences across the adult life span: a question of age and domain. Journals of Gerontology, Series B: Psychological Sciences and Social Sciences, 69(6), 870–880.
Rowe, S. P. (2019). Auditors’ comfort with uncertain estimates: More evidence is not always better. Accounting, Organizations and Society, 76, 1–11.
Salehi, M., Tarighi, H., & Sahebkar, H. (2018). The impact of auditor conservatism on accruals and going concern opinion: Iranian angle. International Journal of Islamic and Middle Eastern Finance and Management, 11(4), 650–666.
Schafer, B. A., & Schafer, J. K. (2019). Interpersonal affect, accountability and experience in auditor fraud risk judgments and the processing of fraud cues. In Advances in Accounting Behavioral Research Vol. 22 (pp. 43–65). Somerville, MA: Emerald Publishing Limited.
Van Winsen, F., De Mey, Y., Lauwers, L., Van Passel, S., Vancauteren, M., & Wauters, E. (2016). Determinants of risk behaviour: Effects of perceived risks and risk attitude on farmer’s adoption of risk management strategies. Journal of Risk Research, 19(1), 56–78.
Watts, R. L. (2003). Conservatism in accounting Part I: explanations and implications. Accounting Horizons, 17(3), 207–221.
Weber, E. U. (2010). Risk attitude and preference. Wiley Interdisciplinary Reviews: Cognitive Science, 1(1), 79–88.
Wehrfritz, M., & Haller, A. (2014). National influence on the application of IFRS: Interpretations and accounting estimates by German and British accountants. Advances in Accounting, Incorporating Advances in International Accounting, 30(1), 196–208.
Alderman, J. (2017). Does auditor gender influence auditor liability? Exploring the impact of the crime congruency effect on jurors’ perceptions of auditor negligence. Advances in Accounting, 38, 75–87.
Asare, S. K., Cianci, A. M., & Tsakumis, G. T. (2009). The impact of competing goals, experience, and litigation consciousness on auditors’ judgments. International Journal of Auditing, 13(3), 223–236.
Bannister, J. W., & Wiest, D. N. (2001). Earnings management and auditor conservatism: Effects of SEC enforcement actions. Managerial Finance, 27(12), 57–71.
Barrainkua, I., & Espinosa-Pike, M. (2018). The influence of auditors’ professionalism on ethical judgement: Differences among practitioners and postgraduate students. Revista de Contabilidad, 21(2), 176–187.
Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37.
Basu, S., Hwang, L.-S., & Jan, C.-L. (2001). Differences in Conservatism between Big Eight and non-Big Eight Auditors. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2428836
Bennett, B., Bradbury, M., & Prangnell, H. (2006). Rules, principles and judgments in accounting standards. Abacus, 42(2), 189–204.
Blais, A.-R., & E. Weber. (2006). A domain-specific risk-taking (DOSPERT) scale for adult populations. Judgment and Decision Making, 1(1), 33–47.
Bonner, S. E. (2008). Judgment and Decision Making in Accounting. Upper Saddle River, NJ: Prentice Hall.
Bradbury, M. E., & Schröder, L. B. (2012). The content of accounting standards: Principles versus rules. The British Accounting Review, 44(1), 1–10.
Carmona, S., & Trombetta, M. (2008). On the global acceptance of IAS/IFRS accounting standards: The logic and implications of the principles-based system. Journal of Accounting and Public Policy, 27(6), 455–461.
Chen, F., Hou, Y., Richardson, G., & Ye, M. (2018). Auditor experience and the timeliness of litigation loss contingency disclosures. Contemporary Accounting Research, 35(2), 956–979.
Chow, C. W., Harrison, G. L., McKinnon, J. L., & Wu, A. (2002). The organizational culture of public accounting firms: Evidence from Taiwanese local and US affiliated firms. Accounting, Organizations and Society, 27(4–5), 347–360.
Chung, R., Firth, M., & Kim, J. B. (2003). Auditor conservatism and reported earnings. Accounting and Business Research, 33(1), 19–32.
Chy, M., & Hope, O.-K. (2019). Real Effects of Auditor Conservatism (Rotman School of Management Working Paper No. 2801183). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801183
Doupnik, T. S., & E. L. Riccio. (2006). The influence of conservatism and secrecy on the interpretation of verbal probability expressions in the Anglo and Latin cultural areas. International Journal of Accounting, 41(3), 237–261.
Doupnik, T. S., & M. Richter. (2004). The impact of culture on the interpretation of "in context" verbal probability expressions. Journal of International Accounting Research, 3(1), 1–20.
Elshafie, E. (2016). Determinants and consequences of auditor conservatism. Journal of Accounting, Ethics and Public Policy, 17(4), 831–876.
Feldmann, D. A., & Read, W. J. (2010). Auditor conservatism after Enron. Auditing, 29(1), 267–278.
Financial Accounting Standards Board (FASB). (1980). Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information. Norwalk, CT: FASB.
Firth, M. A., Mo, P. L. L., & Wong, R. M. K. (2014). Auditors’ reporting conservatism after regulatory sanctions: Evidence from China. Journal of International Accounting Research, 13(2), 1–24.
Gray, S. J. (1988). Towards a theory of cultural influence on the development of accounting systems internationally. Abacus, 24(1), 1–15.
Griffith, E., Hammersley, J., Kadous, K., & Young, D. (2015). Auditor mindsets and audits of complex estimates. Journal of Accounting Research, 53(1), 49–77.
Gürdal, M. Y., Kuzubaş, T. U., & Saltoğlu, B. (2017). Measures of individual risk attitudes and portfolio choice: Evidence from pension participants. Journal of Economic Psychology, 62, 186–203.
Hardies, K., Breesch, D., & Branson, J. (2012). Male and female auditors’ overconfidence. Managerial Auditing Journal, 27(1), 105–118.
Hofstede, G. (1980). Culture’s Consequences: International Differences in Work-Related Values. Beverly Hills, CA: Sage Publications.
Kim, J. B., Chung, R., & Firth, M. (2003). Auditor conservatism, asymmetric monitoring, and earnings management. Contemporary Accounting Research, 20(2), 323–359.
Law, P. (2008). An empirical comparison of non-Big 4 and Big 4 auditors’ perceptions of auditor independence. Managerial Auditing Journal, 23(9), 917–934.
Lee, P. J., Taylor, S. J., & Taylor, S. L. (2006). Auditor conservatism and audit quality: Evidence from IPO earnings forecasts. International Journal of Auditing, 10(3), 183–199.
Lennox, C. S., & Kausar, A. (2017). Estimation risk and auditor conservatism. Review of Accounting Studies, 22(1), 185–216.
Lu, T., & Sapra, H. (2009). Auditor conservatism and investment efficiency. The Accounting Review, 84(6), 1933–1958.
Maart-Noelck, S. C., & Musshoff, O. (2014). Measuring the risk attitude of decision-makers: Are there differences between groups of methods and persons? The Australian Journal of Agricultural and Resource Economics, 58(3), 336–352.
Mactavish, C., McCracken, S., & Schmidt, R. N. (2018). External auditors’ judgment and decision making: An audit process task analysis. Accounting Perspectives, 17(3), 387–426.
Maradona, A. F., & Chand, P. (2018). The pathway of transition to International Financial Reporting Standards (IFRS) in developing countries: Evidence from Indonesia. Journal of International Accounting, Auditing and Taxation, 30, 57–68.
Markiewicz, Ł., & E. U. Weber. (2013). DOSPERT’s gambling risk-taking propensity scale predicts excessive stock trading. Journal of Behavioral Finance, 14(1), 65–78.
Nobes, C. (2005). Rules-based standards and the lack of principles in accounting. Accounting Horizons, 19(1), 25–34.
Ojiako, U., Chipulu, M., Gardiner, P., Williams, T., Mota, C., Maguire, S., Shou, Y., & Stamati, T. (2014). Effect of project role, age and gender differences on the formation and revision of project decision judgements. International Journal of Project Management, 32(4), 556–567.
Pflugrath, G., Martinov-Bennie, N., & Chen, L. (2007). The impact of codes of ethics and experience on auditor judgments. Managerial Auditing Journal, 22(6), 566–589.
Radebaugh, L. H., & S. J. Gray. 2002. International Accounting and Multinational Enterprises (5th ed.). New York, NY: John Wiley & Sons.
Rolison, J. J., Y. Hanoch, S. Wood, & P.-J. Liu. (2013). Risk-taking differences across the adult life span: a question of age and domain. Journals of Gerontology, Series B: Psychological Sciences and Social Sciences, 69(6), 870–880.
Rowe, S. P. (2019). Auditors’ comfort with uncertain estimates: More evidence is not always better. Accounting, Organizations and Society, 76, 1–11.
Salehi, M., Tarighi, H., & Sahebkar, H. (2018). The impact of auditor conservatism on accruals and going concern opinion: Iranian angle. International Journal of Islamic and Middle Eastern Finance and Management, 11(4), 650–666.
Schafer, B. A., & Schafer, J. K. (2019). Interpersonal affect, accountability and experience in auditor fraud risk judgments and the processing of fraud cues. In Advances in Accounting Behavioral Research Vol. 22 (pp. 43–65). Somerville, MA: Emerald Publishing Limited.
Van Winsen, F., De Mey, Y., Lauwers, L., Van Passel, S., Vancauteren, M., & Wauters, E. (2016). Determinants of risk behaviour: Effects of perceived risks and risk attitude on farmer’s adoption of risk management strategies. Journal of Risk Research, 19(1), 56–78.
Watts, R. L. (2003). Conservatism in accounting Part I: explanations and implications. Accounting Horizons, 17(3), 207–221.
Weber, E. U. (2010). Risk attitude and preference. Wiley Interdisciplinary Reviews: Cognitive Science, 1(1), 79–88.
Wehrfritz, M., & Haller, A. (2014). National influence on the application of IFRS: Interpretations and accounting estimates by German and British accountants. Advances in Accounting, Incorporating Advances in International Accounting, 30(1), 196–208.
Published
2020-01-20
How to Cite
MARADONA, Agus Fredy.
Do Individual Risk Attitudes, Experience, and Organizational Culture Influence the Conservatism of Indonesian Auditors?.
Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 15, n. 1, p. 1-14, jan. 2020.
ISSN 2303-1018.
Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/54238>. Date accessed: 27 sep. 2024.
doi: https://doi.org/10.24843/JIAB.2020.v15.i01.p01.
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