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Improving Experienced Auditors’ Detection of Deception in CEO Narratives
Author(s) -
HOBSON JESSEN L.,
MAYEW WILLIAM J.,
PEECHER MARK E.,
VENKATACHALAM MOHAN
Publication year - 2017
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12181
Subject(s) - deception , cognitive dissonance , narrative , audit , earnings , psychology , accounting , cognition , social psychology , business , linguistics , philosophy , neuroscience
We experimentally study the deception detection capabilities of experienced auditors, using CEO narratives from earnings conference calls as case materials. We randomly assign narratives of fraud and nonfraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception. We predict this instruction will weaken auditors’ learned tendency to overlook fraud cues. We find that auditors’ deception judgments are less accurate for fraud companies than for nonfraud companies, unless they receive this instruction. We also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.