Keywords

ICFR, material weakness, material misstatement, construal level theory, psychological distance

Abstract

Auditors often underestimate the severity of internal control deficiencies, particularly when associated misstatements are immaterial. We find that auditors are more likely to correctly classify a material weakness when no misstatement information is provided than when misstatement information is available, and that this finding may unconsciously arise from auditors’ construal level in judging control deficiency severity. Through a series of experiments, we manipulate misstatement information related to an internal control deficiency designed to represent a material weakness. We hold the size of potential misstatement constant and find that auditors and graduate auditing students are less likely to correctly assess the severity of a deficiency as the size of actual misstatement decreases. When no information is provided about a misstatement, we hypothesize and find that this leads to lower construal levels, causing auditors to be more likely to correctly classify a material weakness compared to when an inconsequential misstatement occurred.

Original Publication Citation

“Psychological Distance and Auditor Classification of Internal Control Deficiencies,” with J. Keyser and S. Jackson, under review at Auditing: A Journal of Practice & Theory.

Document Type

Peer-Reviewed Article

Publication Date

2026

Publisher

Auditing: A Journal of Practice & Theory

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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