Factors that affect an auditor’s judgment. A study was conducted to determine the effects of linguistic delivery style and client credibility on auditors’ judgments

(Advances in Accounting and Behavioral Research, 2003).

Each of 200 auditors performed an analytical review of a client’s financial statement. The researchers gave the auditors different information on the client’s credibility and the linguistic delivery style of the client’s explanation.

Each auditor then provided an assessment of the likelihood that the client’s explanation accounts for the fluctuation in the financial statement. The three variables of interest—credibility 1x12, linguistic delivery style 1x22, and likelihood (y)—were all measured on a numerical scale. Regression analysis was used to fit the interaction model y = b0 + b1 x1 + b2 x2 + b3 x1 x2 +

e. The results are summarized in the table at the bottom of the page.

a. Interpret the phrase “client credibility and linguistic delivery style interact” in the words of the problem.

b. Give the null and alternative hypotheses for testing the overall adequacy of the model.

c. Conduct the test suggested in part

b, using the information in the table.

d. Give the null and alternative hypotheses for testing whether client credibility and linguistic delivery style interact.

Results for Exercise 12.55 Beta Estimate Std Error t-statistic p-value Constant 15.865 10.980 1.445 0.150 Client credibility 1x12 0.037 0.339 0.110 0.913 Linguistic delivery style 1x22 -0.678 0.328 -2.064 0.040 Interaction 1x1 x22 0.036 0.009 4.008 6 0.005 F = 55.35 1p 6 0.00052; Adjusted R2

= .450

e. Conduct the test suggested in part

d, using the information in the table.

f. The researchers estimated the slope of the likelihood–

linguistic delivery style line at a low level of client credibility 1x1 = 222. Obtain this estimate and interpret it in the words of the problem.

g. The researchers also estimated the slope of the likelihood–linguistic delivery style line at a high level of client credibility 1x1 = 462. Obtain this estimate and interpret it in the words of the problem.