The In-group Bias Effect on Auditors’ Evidence Evaluation: Can a Decision Aid Make a Difference?

In-group bias, a product of Social Identity Theory, may impair auditor independence by influencing auditor judgments in an analytical review task. Auditors rely on client representations to support their opinion of the financial statements; however, clients are sometimes former auditors of the external audit firm. This prior relationship could lead the auditor to exhibit unwarranted trust of client representations. In an online experiment, I test whether auditor judgments, confidence, and decisions to extend testing differ based on a client’s prior affiliation. Participants include both novice and senior auditors. Preliminary findings indicate the existence of in-group bias, especially among inexperienced auditors. Practice and prior literature suggest using decision aids to counter biased judgments. In the same experiment, I find that a structured decision aid report effectively reduces bias. Auditors should be conscious of the potential for this bias when assigning personnel to engagements. They should also note the usefulness of decision aids in improving judgment.