The Effects of Immediate Context on Auditors' Judgments of Loan Quality.

This study examines whether auditors, when making a series of similar, independent judgments are non-normatively influenced by their earlier judgments. Two judgment biases are considered: contrast effect and assimilation effect. We conducted an experiment where experienced auditors classified a number of commercial loans based on collection risk. The auditors' judgments displayed a significant contrast effect, and range-frequency theory explains a significant portion of the variance in their judgments (Parducci 1965). The results suggest that auditors tended to use the range principle more than the frequency principle to classify loans. This bias has potential implications for audit practice. By comparing auditors to graduate accounting students we find evidence that task experience moderates the magnitude of the judgment bias. [ABSTRACT FROM AUTHOR]