The effects of being held accountable to multiple masters on auditor's judgments and decisions

The Sarbanes-Oxley Act (SOX) increased the interaction of the auditor with the audit committee. Although this may improve auditor judgment quality, there is no empirical evidence supporting this view. In addition, several academics argue that unconscious auditor biases---such as the identification of auditors with management---will render changes made by SOX ineffective in improving auditor judgment quality. The purpose of this paper is to develop and experimentally test a model to predict auditor behavior when auditors are held accountable to multiple masters. The model predicts that requiring the auditor to report to both management and the audit committee will improve auditor decision quality; however, these improvements will only be realized when the auditor identifies to a low degree with management. The model suggests that when the auditor identifies to a high degree with management, the auditor's cognitive effort direction will be unconsciously biased towards management resulting in biased auditor judgments. Contrary to the predictions of the model, however, the results show that reporting to multiple masters results in an auditor reporting the manager is being more opportunistic than when an auditor reports only to management or only to the audit committee.