Graduation Year


Document Type




Degree Granting Department


Major Professor

Jacqueline L. Reck, Ph.D.

Committee Member

Uday S. Murthy, Ph.D.

Committee Member

Lisa M. Gaynor, Ph.D.

Committee Member

Terry L. Sincich, Ph.D.


Experimental, motivated reasoning, negativity bias, conservative bias, and audit standards


In this study, I examine the effects of audit guidance and estimation uncertainty on auditors’ confirmation bias and professional skepticism when evaluating fair value estimates. Fair value estimation is becoming more prevalent in financial reporting frameworks, and regulators warn that fair value estimation presents higher risk of material misstatement when greater judgment in estimation is involved. In addition recent evidence from the Public Company Accounting Oversight Board (PCAOB) indicates that some auditors may not be exercising sufficient professional skepticism when performing audit procedures in higher risk areas of the audit. Martin et al. (2006) suggest that it may be the audit standards themselves that orient auditors toward biased evaluation of management’s estimates, suggesting that such directional audit guidance leads to confirmation bias. Further, it is possible that because of auditors’ intolerance for ambiguity, that a greater degree of estimation uncertainty exacerbates the bias. Thus, I examine whether directional audit guidance (e.g., support management’s estimate, and oppose management’s estimate) versus non-directional audit guidance (e.g., develop own estimate) affects auditors’ confirmation bias differentially under varying degrees of uncertainty (e.g., low vs. high), and the extent to which this bias increases or decreases professional skepticism. The results show that auditors exhibit the greatest confirmation bias when they are directed to oppose versus support management’s estimate or generate their own estimate, and that this bias increases the degree of professional skepticism exercised by auditors. Further, the greatest extent of confirmation bias resulted when auditors were directed to oppose management’s estimate and estimation uncertainty was high. This study sheds light on the effects of directional versus non-directional audit guidance in the presence of uncertainty and should be informative to standard setters and practitioners as they press forward in issuing new audit guidance related to the evaluation of fair value estimates.