This paper investigates the effect of different mood states—specifically
positive, neutral, and negative mood—on inventory valuation decisions. Psychological
research suggests that different mood states can lead to different professional judgments
in the performance of an ambiguous task. Compared with neutral- and negativemood
individuals, positive-mood individuals have the lowest consensus and make the
least conservative judgment i.e., the highest inventory valuation, and negative-mood
individuals have the highest consensus and make the most conservative judgment i.e.,
the lowest inventory valuation. An experiment conducted with 102 Australian audit
professionals found that, consistent with the literature, mood states affect the dispersion
and extent of conservatism in the inventory valuation judgment. A follow-up experiment
conducted with 170 final-year Australian auditing students suggests that the effect
of moods on judgment may be due to the mood-congruent retrieval of information by
the participants. Implications for practice and research are also provided.