Kathryn Kadous

Schaefer Chaired Professor of Accounting Emory University, Goizueta Business School

  • Atlanta GA

Kadous's research focuses on using psychology to improve investor and auditor decision making.

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Biography

Kathryn Kadous is the Schaefer Chaired Professor of Accounting at Emory University's Goizueta Business School. She served as Director of Graduate Studies and Associate Dean of the Goizueta PhD Programs from 2017-2023. Professor Kadous earned a PhD from the University of Illinois.

Her research considers judgment and decision-making issues in auditing and accounting. Her current research is focused primarily on using psychology theory to improve auditor and investor decision making and on methodological issues in experimental research.

Professor Kadous' research has been published in The Accounting Review, Contemporary Accounting Research, Journal of Accounting Research, Organizational Behavior and Human Decision Processes, The Journal of Behavioral Finance, and Auditing: A Journal of Practice and Theory.

Professor Kadous has extensive editorial experience and currently serves as Senior (Managing) Editor of The Accounting Review. She has held several positions with the American Accounting Association, including President of the Auditing Section.

Education

Creighton University

BSBA

Accounting

1986

summa cum laude

University of Illinois at Urbana-Champaign

MAS

Accountancy

1990

University of Illinois at Urbana-Champaign

PhD

Accountancy

1996

Areas of Expertise

Auditor Judgment
Investor Judgment
Audits of Financial Statements
Financial Reporting
Cognitive Processing and Complex Judgments

Publications

Are juries more likely to second-guess auditors under imprecise accounting standards?

Auditing: A Journal of Practice & Theory

2016

U.S. auditors are concerned that less precise accounting standards will cause more second-guessing of their judgments and thus greater legal liability. We report the results of an experiment that tests the validity of this concern. We manipulate the aggressiveness of the client's reporting decision and the precision of the accounting guidance related to the reporting decision. When the client's reporting is conservative, we observe more second-guessing of auditor judgments under the imprecise standard than the precise standard. However, when the auditor allows aggressive client reporting, we observe less tendency toward second-guessing under the imprecise standard. Indeed, rather than being overly harsh, juries appear to be overly lenient when auditors allow aggressive accounting under an imprecise standard. Our results suggest a need for tools to help jurors evaluate auditor judgments under imprecise standards.

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How insights from the “new” JDM research can improve auditor judgment: Fundamental research questions and methodological advice

Auditing: A Journal of Practice & Theory

2015

We examine recent developments in judgment and decision-making (JDM) research to provide insight into how two big ideas in this area can be leveraged as overlapping frameworks to examine and improve auditor judgment. The ideas are (1) that human thinking and reasoning can be characterized by a dual-process model and (2) that conscious and nonconscious goals drive cognition. Despite that these ideas are well established in the broader JDM literature and have great promise for improving auditor judgment, we observe minimal use of them in the audit JDM literature. Thus, we briefly outline these ideas, and we develop fundamental, high-level research questions related to audit JDM research that are based on these ideas. Finally, we provide guidance for designing and evaluating experiments that effectively use these frameworks, whether in auditing or other rich decision-making contexts. The frameworks can help researchers improve audit quality by enhancing our understanding of auditors' judgment processes and the factors that influence them, by allowing for new ways of thinking about how to improve auditor judgment, and by suggesting new interventions for improving auditor judgment.

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Auditor Mindsets and Audits of Complex Estimates

A Journal of Accounting Research

2014

Auditors experience significant problems auditing complex accounting estimates, and this increasingly puts financial reporting quality at risk. Based on analyses of the specific errors that auditors commit, we propose that auditors need to be able to think more broadly and incorporate information from a variety of sources in order to improve audit quality for these important accounts. We experimentally demonstrate that a deliberative mindset intervention improves auditors’ ability to identify unreasonable estimates by improving their ability to identify and incorporate into their analyses contradictory information from diverse parts of the audit and improving their ability to think critically about the evidence. We perform additional analyses to demonstrate that our intervention improves auditor performance by causing them to think differently rather than simply to work harder. We demonstrate that critical thinking can improve the identification of unreasonable estimates and, in doing so, we provide new directions for addressing audit quality issues.

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Research Spotlight

2 min

Emory Experts - Accentuating the Positive: Do Investors Rate Non-native English Speaking CEOs More Highly?

When investors are deciding whether to put their capital into a company, they typically take a breadth of different factors into account. Earnings, performance, market share—all of these are critical, for sure. But equally important is belief in the talent and capabilities of the organization, and its most visible human face: its CEO. How a CEO comes across at key touchpoints such as earnings calls can significantly shape investors’ perceptions of his or her abilities. We know from research that even subtle things like tone of voice can increase—or diminish—shareholder confidence. So, too, can subliminal emotional or behavioral cues in speech. But what about something arguably more obvious and easier to quantify? What about accent? Until now, remarkably little attention has been given to how much sway a CEO’s accent has on investors’ impressions or attitudes. We simply don’t know whether chief executives with “foreign” accents fare better or worse with shareholders than native US-English speaking counterparts. And this subject matters. It’s estimated that as many as 9% of all companies in the US and more than 11% of Fortune 500 firms are run today by foreign-born chief executives. How investors perceive these CEOs relative to native speakers could have major implications for hundreds of thousands of organizations. Shedding compelling new light on this is new research by Goizueta PhD candidate Leonardo Barcellos, and Schaefer Chaired Professor of Accounting Kathryn Kadous. Together they have produced a study that suggests that accent does matter – though perhaps not in the way that many of us might think. That study and the entire article is attached – and well worth the read. And if you are a journalist looking to learn more about this topic – then let our experts help. Kathryn Kadous is the Schaefer Chaired Professor of Accounting and Director and Associate Dean of PhD Program at Goizueta Business School. She is available to speak with media – simply click on her icon now to arrange an interview.

Kathryn Kadous

1 min

The challenge of accurately weighting contrary advice

Auditors regularly seek informal advice about their initial judgments from other auditors. Audit firms encourage this advice seeking, believing it enhances professional skepticism and improves professional judgment. But does it? A recent study by Kathryn Kadous, professor of accounting; Justin Leiby (U. Florida); and Mark Peecher (U. Illinois at Urbana-Champaign) investigates contrasting theories and evidence on whether seeking advice improves auditors’ judgment and on the factors that influence how readily they incorporate contrary advice into their judgments. They find that nonspecialist auditors who seek advice from those with whom they share a close social bond tend to overestimate the value of that advice. On the other hand, specialists tend to underestimate such advice, perhaps, note the authors, because of threats to the specialists’ egos. In both cases the defensibility of the auditors’ conclusions is negatively affected, heightening audit risk. Source:

Kathryn Kadous

1 min

The process behind auditor judgement

Auditors are required to use considerable judgment in their job, assessing information from a number of sources to create financial reports, critique accounting estimates, and assess a company’s internal controls over financial reporting. But an auditor’s decision-making process is not well understood. In their paper, Kathryn Kadous, professor of accounting, and coauthors Emily E. Griffith (U Wisconsin) and Donald Young 13PhD (Goizueta, Indiana U) provide a framework for researchers to better evaluate the judgment of auditors and, in turn, improve audit quality. Prior research in this area presumes that “decision makers typically engage deliberate, analytical processes to solve problems (i.e., pursue goals) that they have specifically chosen, that they limit their decision inputs to items they view as relevant, and that they have access to the details of their own cognitive processing.” The trio notes that “nonconscious goals” and “intuitive processes” are also influential in the decision-making process and in the factors driving these processes. Kadous, Griffith, and Young conclude that their framework indicates researchers approach their investigation by taking into account “conscious and nonconscious goals” and “decision makers with conflicting incentives, as well as differing capabilities.” Source:

Kathryn Kadous

In the News

CAQ awards five grants for audit research

Accounting Today  online

2019-05-22

The CAQ has provided funding for 44 related projects over the last 11 years via its Research Advisory Board grant program. The RAB comprises members of academia and the auditing profession.

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How Principles-Based Accounting Standards Impact Litigation

Law 360  online

2016-02-22

Principles-based standards may have a dampening effect on the litigation outcomes. When the client engages with aggressive accounting, the flexibility of principles-based standards works in favor of auditors.

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Exploring the scholarly inquiry of Kathryn Kadous

emorybusiness.com  online

2015-11-09

According to research from Kathryn Kadous, McIntyre term chair and professor of accounting at Goizueta, the accounting world has yet to deal with how auditors’ workflow and the unconscious biases that it produces impact their work. In a research paper titled “Auditor mindsets and audits of complex estimates,” Kadous and co-authors discovered that an unconscious bias—a lack of professional skepticism—inhibits auditors’ ability to spot problems in the financial statements.

To sign off on financial statements of public companies, top auditors gather information from the company itself, from multiple auditors working under them, and from outside specialists hired by the company and the auditing firm. Auditors use this information to determine whether estimates in corporate financial statements are reasonable, yet their conclusions can be wrong if they fail to question the sources of this information or fail to notice inconsistencies across information.

Kadous’s work centers on the psychological process of accounting and auditing work. “My research focuses on how auditors make judgments about the most complex accounts on financial statements—complex estimates,” she says. Estimates are required for important accounts on the financial statements, including investments and securities, goodwill, allowance for loan losses, intangibles, and more. “This part of the auditor’s job requires considerable judgment, and regulators and researchers, as well as auditors themselves, have been clear that auditors need help in this area,” she says.

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