Effects of CFO's familiarity and assertions on Related Party Transaction reporting judgment of internal auditors: Evidence from Iran

Document Type : Original Article

Author

School of Economy, Management and Social Science, Shiraz University, Fars, Iran

10.22067/ijaaf.2024.85883.1423

Abstract

We conduct an experiment with internal auditors of holding companies where we manipulate whether participants are exposed to the personal and positive behavioral information of a CFO as a Related Party Transaction (RPT) violator in Stage 1, and whether the CFO admits that he was aware of the RPT but unable to prevent it (combined assertion) or simply denies it by saying that he was not aware of the RPT (denial assertion) in Stage 2. The results suggest that while exposure to the CFO's personal and behavioral information improves auditors' perceived CFO credibility, it leads to a lower probability of reporting the RPT. This highlights the familiarity threat for internal auditors. Additionally, results show that when auditors are exposed to the CFO's personal and behavioral information, the combined assertion enhances the perceived credibility of the CFO, whereas denial assertion reduces perceived CFO credibility insignificantly. The results also illustrate that the CFO's assertion does not affect the RPT reporting probability of auditors when they are exposed to CFO's behavioral information.

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