Does Status Equal Substance? The Effects of Specialist Social Status on Auditor Assessments of Complex Estimates

Auditors rely on specialists in auditing complex estimates, but do they rely on specialists for the right reasons? We examine whether specialists' high social status influences auditor assessments of specialists' competence and, in turn, auditors' conclusions about the reasonableness of client estimates. We argue that specialist social status most likely affects auditor conclusions under conditions of heightened ambiguity, specifically when (1) the specialist disagrees with the client or (2) when the specialist agrees with the client but offers poor justification for the conclusion. We first conduct a survey with highly experienced auditors to distinguish characteristics that are diagnostic of high social status but not of competence. We then conduct two experiments in which we vary status characteristics of the specialist and hold competence constant. Encouragingly, we find that auditors are more willing to disagree with the client's estimate when a high (as opposed to moderate) social status specialist disagrees with it. Contrary to expectations, auditors seem to ignore the quality of specialists' justifications and instead anchor on specialists' conclusions. Moreover, supplemental analyses suggest that auditors unintentionally mistake social status for competence, but intentionally use social status to guide their reliance on the specialist in forming a conclusion about the client's estimate. That is, auditors know that high social status is not a valid signal of competence, but use this signal in their judgments anyway. Our evidence suggests that this stems from beliefs that a high social status specialist's clout and social influence is necessary to push back on an aggressive client estimate. We discuss practical and theoretical implications, including that it may be advantageous to separate competence assessments from determinations of how to use the specialist's input. It may also be advantageous for firms, regulators, and standard setters to recognize that auditors are influenced by specialist attributes other than competence, including the specialist's social status