Prompting the Benefit of the Doubt: The Joint Effects of Auditor Independence and Measurement Uncertainty on Audit Adjustments

Results from an incentivized experiment show that social bonds arising from casual interactions between auditors and reporters moderate audit adjustments downward when audit evidence suggesting a misstatement is characterized by measurement uncertainty, but not when the amount of misstatement is known with certainty. Accordingly, our study suggests that the technical challenge posed by auditing complex estimates can be compounded by the behavioral tendency to give clients the "benefit of the doubt" when auditors develop friendly associations with client personnel. A practical implication is that auditors' use of specialists in areas of measurement uncertainty can confer not only the benefit of additional expertise, but also the benefit of a more dispassionate, independent perspective.