The influence of decision aid use on auditors' processing of irrelevant information in fraud risk assessment

This study provides evidence on how decision aid use affects auditor judgment in fraud risk assessment. Specifically, I examine the nature of the relation between decision aid use and auditors' susceptibility to dilution, an information processing bias where non-predictive cues "water down" or dilute the predictive value of diagnostic cues.; In a fraud risk assessment task, dilution is believed to occur when an auditor mis-classifies irrelevant characteristics as relevant characteristics inconsistent with fraud. Incorporating these irrelevant factors ultimately reduces fraud risk assessment. Because use of a decision aid could encourage auditors to adopt a similarity-based inference process that fails to properly distinguish the relevant from the irrelevant, I predict that auditors using a decision aid would exhibit more dilution than auditors making unaided judgments.; This prediction is tested in a between-subjects experiment where 149 supervising senior auditors were asked to assess fraud risk after reviewing a brief case describing a hypothetical client. Results indicate that use of a decision aid exacerbated dilution. Decision-aided auditors had lower assessments than their counterparts making unaided judgments.; The implications to audit practice are significant. This study suggests that audit firms may be exposing themselves to greater levels of legal liability as a result of using decision aids that may increase the risk of not detecting frauds.