The Halo Effect in the Presence of Fraud Risk Factors: An Examination of Auditor Skepticism

Abstract

This study is the first stage of a multi part study examining halo effects among auditors. We specifically examine two questions: (1) Are auditors susceptible to halo effects, and (2) Does the presence of fraud risk factors mitigate halo effects by increasing auditor objectivity and skepticism? The latter question is motivated by SAS 99 which specifically links the concepts of fraud risk and auditor skepticism. Results of a single experiment are both striking and unexpected. Despite successful halo manipulations, judgments by student participants did not exhibit halo effects in the absence of fraud risk factors, but did exhibit significant halo effects in the presence of fraud risk factors. These results suggest that auditors may not be subject to halo effects directly, but become subject to halo effects when processing other information/evidence.