Halo Effect in Analytical Procedure : The Impact of Client’s Profile and Scope of Information

Many auditor use risk-based audit as an audit methodology that emphasizes assessing audit risk. Holistic perspective during strategic assessment encourage auditor to focus on the big picture. They understand industry and client business in analytical procedure and determine risk of material misstatement as initial hypothesis about the client. Previous research found that holistic perspective in strategic assessment caused the halo effect. The study focuses on the phenomena of halo effect in analytical procedure, impact of client's profile and scope of information that be presented to auditor in planning audit. We propose that auditors' judgment will be impacted the client's profile and professional judgment will be different in holistic and specific scope of information. The study is motivated by the bounded rationality of individual and use representative heuristics to evaluate his client. Holistic opinion of the person tends to consistent when analyzing detailed diagnostic information about the person. In analytical procedure context, understanding of industry and client business influences the extent to which they adjust account-level risk assessment. We hypothesize that (1) the risk of material misstatement after presentation of client's profile should be positively correlated with the risk of material misstatement after get financial information of client; (2) auditor who obtains information of client in scope of holistic information would determine the risk of material misstatement lower than auditor who obtains information in scope of specific information. Data from laboratory experiment using various levels of auditor. Finding suggests that the halo effect generated during analytical procedure and when auditor obtain information of client in holistic scope