Factors that impact an auditor’s judgment. A study

QUESTION:

Factors that impact an auditor’s judgment. A study was conducted to determine the effects of linguistic deliverystyle and client credibility on auditors’ judgments(Advances in Accounting and Behavioral Research, 2004).Two hundred auditors from Big 5 accounting firms were each asked to assume that he or she was an audit team supervisor of a new manufacturing client and was performing an analytical review of the client’s financial statement.The researchers gave the auditors different information on the client’s credibility and linguistic delivery style of the client's explanation. Each auditor then provided an assessment of the likelihood that the client-provided explanation accounted for the fluctuation in the financial statement.The three variables of interest—credibility (\(x_1\)), linguistic delivery style (\(x_2\)), and likelihood (y)—were all measured on a numerical scale. Regression analysis was used to fit the interaction model, \(y=\beta_0+\beta_1x_1+\beta_2x_2+\beta_3x_1x_2+\epsilon\).The results are summarized in the table on the next page.

a. Interpret the phrase client credibility and linguistic delivery style interact in the words of the problem.

b. Give the null and alternative hypotheses for testing the overall adequacy of the model.

c. Conduct the test, part b, using the information in the table.

d. Give the null and alternative hypotheses for testing whether client credibility and linguistic delivery style interact.

e. Conduct the test, part d, using the information in the table.

f. The researchers estimated the slope of the likelihood–linguistic delivery style line at a low level of client credibility (\(x_1 = 22\)). Obtain this estimate and interpret it in the words of the problem.

g. The researchers also estimated the slope of the likelihood–linguistic delivery style line at a high level of client credibility (\(x_1 = 46\)). Obtain this estimate and interpret it in the words of the problem.