The Effects of Familiarity and Assertions of the RPT Violator on Internal Auditors’ Credibility and Reporting Judgments

Document Type : Original Article

Author

• Marzieh Tohidinejad

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

10.22067/ijaaf.2025.462481423

Abstract

A 2×2 full factorial experiment is designed by manipulating participants' exposure to the positive behavioral information of a Chief Financial Officer (CFO) as a violator of Related Party Transactions (RPT) (high versus low exposure) and his related assertions (combined versus denial assertion). The credibility and reporting judgments of internal auditors can be influenced by these manipulated variables in accordance with the mere exposure effect and the benefit of the doubt. This study included 80 Iranian internal auditors as participants. The results suggest that exposure to the violator’s positive behavioral information enhances internal auditors’ perceived credibility of the violator, leading to a decreased likelihood of reporting the RPT. Furthermore, the findings demonstrate that when internal auditors are exposed to the positive behavioral information of the RPT violator, the combined assertion of the RPT violator reduces the probability of reporting the RPT by internal auditors. The results underscore the significance of professional judgment and skepticism among internal auditors.

Keywords

• Credibility Judgment
• Mere-Exposure Effect
• Reporting Judgment
• Related Party Transactions
• Violator’s Assertions

Main Subjects

• Auditing

---

References

1. Asare, S.K. and McDaniel, L.S. (1996). The effects of familiarity with the preparer and task complexity on the effectiveness of the audit review process. Accounting Review, 71(2), pp. 139-159. http://www.jstor.org/stable/248443.
2. Bagdasarov, Z., Connelly, S. and Johnson, J.F. (2019). Denial and empathy: partners in employee trust repair? Frontiers in Psychology, 10(1), pp. 19. https://doi.org/10.3389/fpsyg.2019.00019
3. Bamber, E.M. and Iyer, V.M. (2007). Auditors' identification with their clients and its effect on auditors' objectivity. Auditing: A Journal of Practice & Theory, 26(2), pp. 1-24. https://doi.org/10.2308/aud.2007.26.2.1
4. Barton, J. and Mercer, M. (2005). To blame or not to blame: analysts’ reactions to external explanations for poor financial performance. Journal of Accounting and Economics, 39(3), pp. 509-533. https://doi.org/10.1016/j.jacceco.2005.04.006
5. Bonner, S.E., Hugon, A. and Walther, B.R. (2007). Investor reaction to celebrity analysts: The case of earnings forecast revisions. Journal of Accounting Research, 45(3), pp. 481-513. https://doi.org/10.1111/j.1475-679X.2007.00245.x
6. Bornstein, R.F. (1989). Exposure and affect: overview and meta-analysis of research, 1968–1987. Psychological bulletin, 106(2), pp. 265. https://psycnet.apa.org/record/1990-00422-001
7. Bornstein, R.F. and D’Agostino, P.R. (1994). The attribution and discounting of perceptual fluency: Preliminary tests of a perceptual fluency/attributional model of the mere exposure effect. Social Cognition, 12(2), pp. 103-128. https://doi.org/10.1521/soco.1994.12.2.103
8. Brickman, P., Meyer, P. and Fredd, S. (1975). Effects of varying exposure to another person with familiar or unfamiliar thought processes. Journal of Experimental Social Psychology, 11(3), pp. 261-270. https://doi.org/10.1016/S0022-1031(75)80026-6
9. Brockner, J. and Swap, W.C. (1976). Effects of repeated exposure and attitudinal similarity on self-disclosure and interpersonal attraction. Journal of Personality and Social Psychology, 33(5), pp. 531. https://psycnet.apa.org/doi/10.1037/0022-3514.33.5.531
10. Buckless, F.A. and Ravenscroft, S.P. (1990). Contrast coding: a refinement of ANOVA in behavioral analysis. Accounting Review, 65(4), pp. 933-945. http://www.jstor.org/stable/247659
11. Butt, J.L. (1988). Frequency judgments in an auditing-related task. Journal of Accounting Research, 26(2), pp. 315-330. https://doi.org/10.2307/2491106
12. Cefaratti, M. and Barkhi, R. (2013). The effects of communication media and client familiarity on auditors’ confidence in deception detection. Journal of Forensic & Investigative Accounting, 5(2), pp. 1-26. http://aisel.aisnet.org/jais/vol15/iss9/1
13. Chen, W. and Tan, H.T. (2013). Judgment effects of familiarity with an analyst’s name. Accounting, Organizations and Society, 38(3), pp. 214-227. https://doi.org/10.1016/j.aos.2013.02.001
14. Cianci, A.M. and Kaplan, S.E. (2010). The effect of CEO reputation and explanations for poor performance on investors’ judgments about the company’s future performance and management. Accounting, Organizations and Society, 35(4), pp. 478-495. https://doi.org/10.1016/j.aos.2009.12.002
15. Clark, L.A. and Watson, D. (1988). Mood and the mundane: relations between daily life events and self-reported mood. Journal of Personality and Social Psychology, 54(2), pp. 296. https://psycnet.apa.org/doi/10.1037/0022-3514.54.2.296
16. Denrell, J. (2005). Why most people disapprove of me: experience sampling in impression formation. Psychological Review, 112(4), pp. 951. https://doi.org/10.1037/0033-295X.112.4.951
17. Druckman, D. and Broome, B.J. (1991). Value differences and conflict resolution: familiarity or liking?. Journal of Conflict Resolution, 35(4), pp. 571-593. https://doi.org/10.1177/0022002791035004001
18. Ferrin, D.L., Dirks, K.T. and Shah, P.P. (2006). Direct and indirect effects of third-party relationships on interpersonal trust. Journal of Applied Psychology, 91(4), pp. 870. https://psycnet.apa.org/doi/10.1037/0021-9010.91.4.870
19. Hugon, J.A. (2004). Effects of redundancy in media coverage on nonprofessional investors' earnings forecasts. University of Southern California, California, US.
20. Hussey, R. (1999). The familiarity threat and auditor independence. Corporate governance: an International Review, 7(2), pp. 190-197. https://doi.org/10.1111/1467-8683.00146
21. Jacoby, L.L., Lindsay, D.S. and Toth, J.P. (1992). Unconscious influences revealed: attention, awareness, and control. American Psychologist, 47(6), pp. 802. https://psycnet.apa.org/doi/10.1037/0003-066X.47.6.802
22. Joe, J.R. (2003). Why press coverage of a client influences the audit opinion. Journal of Accounting Research, 41(1), pp. 109-133. https://doi.org/10.1111/1475-679X.00098
23. Kim, P.H., Dirks, K.T., Cooper, C.D. and Ferrin, D.L. (2006). When more blame is better than less: The implications of internal vs. external attributions for the repair of trust after a competence-vs. integrity-based trust violation. Organizational Behavior and Human Decision Processes, 99(1), pp. 49-65. https://doi.org/10.1016/j.obhdp.2005.07.002
24. Kim, P.H., Ferrin, D.L., Cooper, C.D. and Dirks, K.T. (2004). Removing the shadow of suspicion: the effects of apology versus denial for repairing competence-versus integrity-based trust violations. Journal of Applied Psychology, 89(1), pp. 104. https://doi.org/10.1037/0021-9010.89.1.104
25. Lee, A.Y. (2001). The mere exposure effect: an uncertainty reduction explanation revisited. Personality and Social Psychology Bulletin, 27(10), pp. 1255-1266. https://doi.org/10.1177/01461672012710002
26. Mandler, G., Nakamura, Y. and Van Zandt, B.J. (1987). Nonspecific effects of exposure on stimuli that cannot be recognized. Journal of Experimental Psychology: Learning, Memory, and Cognition, 13(4), pp. 646. https://psycnet.apa.org/doi/10.1037/0278-7393.13.4.646
27. Mercer, M. (2005). The fleeting effects of disclosure forthcomingness on management's reporting credibility. The Accounting Review, 80(2), pp. 723-744. https://doi.org/10.2308/accr.2005.80.2.723
28. Moreland, R.L. and Beach, S.R. (1992). Exposure effects in the classroom: the development of affinity among students. Journal of Experimental Social Psychology, 28(3), pp. 255-276. https://doi.org/10.1016/0022-1031(92)90055-O
29. Mutchler, J.F. (2003). Independence and objectivity: a framework for research opportunities in internal auditing. Research Opportunities in Internal Auditing, 231(1), pp. 268.
30. Orive, R. and Gerard, H.B. (1987). The familiar stimulus as a reducer of anxiety: an experimental study. Journal of Social and Clinical Psychology, 5(3), pp. 330-338. https://guilfordjournals.com/doi/abs/10.1521/jscp.1987.5.3.330
31. Rosnow, R.L. and Rosenthal, R. (1995). “Some things you learn aren't so”: Cohen's paradox, Asch's paradigm, and the interpretation of interaction. Psychological Science, 6(1), pp. 3-9. https://doi.org/10.1111/j.1467-9280.1995.tb00297.x
32. The Institute of Internal Auditors (IIA). (2001). Independence and objectivity: A framework for internal auditors. Altamonte Springs. Florida
33. Vaillant, G.E., Bond, M. and Vaillant, C.O. (1986). An empirically validated hierarchy of defense mechanisms. Archives of General Psychiatry, 43(8), pp. 786-794. https://doi.org/10.1001/archpsyc.1986.01800080072010
34. Wilson, A.B., McNellis, C. and Latham, C.K. (2018). Audit firm tenure, auditor familiarity, and trust: effect on auditee whistleblowing reporting intentions. International Journal of Auditing, 22(2), pp. 113-130. https://doi.org/10.1111/ijau.12108
35. Zajonc, R.B. (1968). Attitudinal effects of mere exposure. Journal of Personality and Social Psychology, 9(22), pp. 1-27. https://psycnet.apa.org/doi/10.1037/h0025848
36. Zajonc, R.B. (2001). Mere exposure: A gateway to the subliminal. Current Directions in Psychological Science, 10(6), pp. 224-228. https://doi.org/10.1111/1467-8721.00154