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Case Study
Pioneering behavioral audit research
Elaine Wang in classroom with students

Wang suspects that American auditors are more likely to assign greater weight onto firm-specific information while evaluating complex accounting estimations such as fair value estimation. In contrast, Chinese auditors are likely to rely on environmental factors in such cases.

According to UMass Amherst Isenberg accounting professor Elaine Wang, auditors from different nations may unwittingly convey different cultural biases in their professional judgments. With support from the Center for Audit Quality based in Washington, D.C., Wang and doctoral candidate Aaron Saiewitz are comparing how American and Chinese auditors account for various types of errors embedded in an auditing case study in different ways.

Awareness and mediation of cultural biases among auditors has considerable value in an increasingly global business world, observes Wang. In her research Wang asks, will different cultural mindsets promote or impede critically important professional skepticism in auditors' judgments? Narrowing those differences goes hand in hand with the expanding footprint of International Financial Reporting Standards, she says.

Wang's study is pioneering, but there is considerable foundational evidence, she notes, that contrasts Western and East Asian cognitive styles. That research holds that Westerners exhibit an analytical style, which extracts objects from their context for critical analysis. East Asians, on the other hand, retain the object-context relationship. That is why, she says, environment may hold greater sway with Chinese auditors.

The research employs fair value accounting rather than traditional historical cost accounting. Based on past transactions, cost accounting confers simplicity and stability, but it does not capture current market value. Fair value accounting does and allows for more open-ended assessment of a current market and its context. That makes it the better choice for Wang's experiment.  

Elaine Wang, Accounting
Wang suspects that American auditors are more likely to assign greater weight onto firm-specific information while evaluating complex accounting estimations such as fair value estimation. In contrast, Chinese auditors are likely to rely on environmental factors in such cases.

Besides fleshing out the cultural differences through the experiment, we're also introducing a condition that we hope will help American and Chinese auditors reduce their biases," remarks Wang. "To that end, we'll inform some of them about the potential for those biases and their impact on professional skepticism and judgment."

"Another strength of our study is that our subjects are senior American and Chinese auditors," adds Wang. "It is unusual to have such high-level subjects; we are grateful to the Center for Audit Quality for helping us to secure them." 

With recent articles in the Journal of Accounting Research and other top-flight journals, Wang is a major contributor in a department that has become a thought leader among business schools in the psychology of conducting audits. In a recent Accounting Research Rankings report by Brigham Young University, Isenberg ranked first in the nation (in a tie) and second in the world (also in a tie) in behavioral audit research. The ranking covers a six-year span. "It's truly exciting to be a part of this innovative group and share their role as a research leader at Isenberg," notes Wang.

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