Abstract The primary purpose of this study was to investigate how auditors' belief revisions and evidence search are influenced by the frame of the hypothesis being tested and by confirmation bias and professional skepticism (conservative bias). This study is distinguished from prior research in three main ways. First, the effects of confirmation bias and professional skepticism on the complementary audit functions of evidence evaluation and evidence search are examined jointly in the same experiment. Second, unlike many studies which have examined belief revisions of auditors solely under an error frame (Ashton and Ashton 1988, 1990; Tubbs et al. 1990), this study examines the judgments and behavior of auditors operating with both environmental (nonerror) and error-framed hypotheses. Third, the full effects of confirmation bias and professional skepticism were enhanced by having the subjects establish their own hypothesis frame and likelihood assessments, rather than respond to preset conditions. Confirmation bias implies that auditors may seek to confirm their hypotheses and so may favor information that confirms rather than refutes their initial assessments. This approach could lead to premature closure on a belief or hypothesis. Professional skepticism implies that auditors focus more on error-related evidence. An approach that is too conservative may lead to the performance of unnecessary audit procedures and thereby reduce audit efficiency. Environmental conditions refer to economic changes, changes in the industry and geographic area in which the company operates, or changes in company policies regarding investment, marketing, and financing strategies. Error conditions refer to intentional or unintentional misstatements in the financial statements. A field experiment was conducted in which auditors reviewed preliminary audit information and then indicated whether they favored an environmental or an error-framed hypothesis as the most likely explanation of an observed fluctuation in financial statement ratios. A likelihood assessment was assigned to the favored hypothesis frame, and the auditors were then asked to seek information to test their initial hypothesis from a list of audit questions. After evaluating the audit cues, the auditors updated their hypothesis beliefs and continued their evidence search. The results of this study indicate that auditors reacted differently to audit evidence, depending upon the frame of the hypothesis they favored and their belief extremity. Specifically, auditors who favored the error frame reacted more strongly to both confirming and disconfirming evidence than did those who favored the environmental frame. Furthermore, in conformance with the findings of Ashton and Ashton (1988, 1990) and contrary to Bamber et al. (1991), the auditors were more responsive to disconfirming evidence than to confirming evidence when belief revision was measured with an absolute scale. However, when the relative change in belief revision was measured with a proportional scale, the magnitude of response with confirming evidence was not significantly different from that with disconfirming evidence. The auditors' continued evidence search was conditioned by a conservative bias irrespective of the hypothesis frame favored or belief extremity; that is, their search strategy emphasized the uncovering of potential material errors (Smith and Kida 1991). Because the conservative bias was stronger for auditors who favored the error frame, confirmation bias may partially account for this effect by enhancing the emphasis on error. Conversely, confirmation bias may have somewhat weakened the effect of conservative bias for those auditors who favored the environmental frame.
McMillan et al. (Thu,) studied this question.