This article investigates the impact of auditing on the commission of financial reporting irregularities by managers. We also examine whether the deterrent effect of auditing is affected by individual demographics. An experiment, using three case scenarios, was employed. Our findings indicated that auditing had a strong deterrent effect when the following conditions were present: material dollar amounts, irregularities involving asset overstatements, unambiguous violations of accounting principles, and low incentive for misstating income. While age, experience, and contact with auditors did not influence the deterrent effect of auditing, we found evidence that respondents with accounting and finance specializations perceived auditing as a greater deterrent than other respondents.
American Journal of Business – Emerald Publishing
Published: Jan 1, 1992
Keywords: Financial reporting irregularities; Auditing; Deterrent effect of auditing
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