Does Practice Risk Reduce the Effects of Client Preference on Tax Professionals' Information Search and Recommendations?

Does Practice Risk Reduce the Effects of Client Preference on Tax Professionals' Information Search and Recommendations?
Author(s): Kadous, Kathryn and Magro, Anne M. and Spilker, Brian C.
Year: 2006
Paper Number: GBS-ACC-2006-001
Goizueta Department: Accounting

Abstract

Tax professionals tend to focus their search for precedents to resolve a client issue on information that supports the client™'s preferred position without giving adequate consideration to information that does not support it. This biased search is associated with inflated assessments of the likelihood that a client's preferred position will be supported in court and recommendations that are aggressive to the point of being inappropriate (Cloyd and Spilker 1999). In an experiment with tax professionals as participants, we examine whether high practice risk mitigates these decision biases. We find that when facing a client with high (versus low) practice risk, professionals perform a more balanced search and make less aggressive recommendations. Path analysis shows that the reduced effect of client preferences on recommendations for high practice risk clients is caused by differences in information search behavior (i.e., it is an indirect effect). We also find that client preferences have a direct, negative impact on recommendations for both high and low practice risk clients, evidencing a possible response to increased environmental risk for all client types.