The impact of diversion of auditors' attention and personal values on earnings management detection

One of the strategies of audited firms’ management is to divert the auditors' attention from the earnings managed accounts to clean accounts (without misstatement) or accounts that contain misstatement other than earnings managed accounts, in order to impact on auditor’s ability in detecting earnings managed. On the other hand, because all people's judgments stem from their personal values, auditors' performance in discovering earning management can be traced back to their personal values. The purpose of this study is to provide empirical evidence on this issue. For this purpose, the required data is collected and analyzed through a experimental and survey plan with the participation of 93certified public accountants. Findings show that auditors’ earnings management detection is worst when they are diverted to clean accounts and best when auditors are diverted to accounts that contain other errors. Our results suggest that managers can potentially exploit an audit management tactic as simple as a diversion to a clean area to reduce auditors’ effectiveness at detecting earnings management. Among 10 personal values, the stimulation had highest impact and benevolence had the lowest impact on auditor’s ability in earning management detection.