National culture effects on groups evaluating internal control

Purpose – This paper aims to report the results of a cross-national cultural experiment on auditors' belief revision when evaluating internal control. Design/methodology/approach – Hogarth and Einhorn's belief-adjustment model (BAM) and Hofstede's national culture are employed. Two experimental conditions, created by crossing two levels of audit information: initial (un)favourable (UNFAV-MODFAV) FAV-MODFAV information, each followed by additional moderately favourable audit evidence and two levels of national culture dimensions of individualism (Australian auditors) and collectivism (Taiwanese auditors). Findings – Consistent with BAM, the results of the experiment confirm that the evaluation task of internal control is an additive process. Collectivist culture auditors are found to revise their beliefs significantly upwards when encountering UNFAV-MODFAV compared with FAV-MODFAV, but not for individualist culture auditors. Collectivist culture auditors also revise their beliefs significantly upwards when they encounter UNFAV-MODFAV compared with individualist culture auditors who do not revise their beliefs significantly upwards. However, neither collectivist nor individualist culture auditors revise their beliefs significantly upwards when encountering FAV-MODFAV. Here, the multivariate regression shows that collectivist (individualist) culture auditors are (are not) concerned with “painting a good picture” to keep the client happy. Practical implications – With globalisation, the national culture effect makes an important contribution to the disclosure of financial reporting. The findings of the research show that, in evaluating the internal control of an audit client, collectivist culture auditors revise their beliefs more favourably when encountering additional audit evidence which is relatively favourable (UNFAV-MODFAV) compared with individualist culture auditors. In practice, the implications on auditors' reporting of the internal control (for example, Section 404 of the Sarbanes Oxley Act 2002) regulator need to take into consideration that the national culture of auditors is an important input in assessing control risk. In bridging the gap between research and practice, an urgent need has to be addressed, as it may impair the effectiveness of the audit. The collective culture auditor's concern to keep the client happy may be construed as not being independent. Originality/value – The paper is the first to employ the BAM and Hofstede's national culture to test auditors of different national cultures in their belief revisions when evaluating the client's internal control.