Behaviorism in auditing and its influence on the legal content of international standards on auditing

Abstract

The paper is devoted to behaviorism in the field of audit activity, which in the form of the theory of behavior is widely used in scientific research and practice in foreign countries, especially in the USA. The least the problem of behaviorism is studied in Ukraine and then in rather general terms. It is shown that the main source of behaviorism is the philosophy of positivism and pragmatism. Its external manifestation is considered to be an individual reaction on stimuli of an external environment. In connection with this, the motives of the behavior of individuals are assigned a leading role in determining the normative regulation of activity of participants in accounting and auditing. It should also be noted that the precedents for assessing the subjects' behavior in this aspect constitute the system of Anglo-American law. The specified legal system has significant differences from the continental or European law to which Ukraine belongs. The dominance in conceptual law of normativism leads objectively to difficulties on introduction of International Standards on Auditing (ISA) based on the Anglo-American legal system in European countries and Ukraine. The paper also considers how a behavioral approach is used in specific ISA. As the example the ISA 315 "Identification and Assessment of Risks of Material Misstatement" and the ISA 240 "Auditor's Responsibilities Regarding Fraud in the Audit of Financial Statements" are taken. In particular, ISA 315 proposes to assess the risks of material misstatement through an understanding of the entity and its environment. It is emphasized that such an understanding of the business entity should not be a formal act as a legal entity, but from the position of the real behavior of management personnel. According to the ISA 240, the auditor should exercise professional skepticism throughout the audit, with recognizing the possibility of significant distortion due to fraud or error regardless of management's positive assessment. Based on professional skepticism, regarding the identification by the auditor of specific opportunities to commit fraud, the ISA 240 recommends to analyze the motives of the management personnel's behavior, pressure from the external environment, opportunities to commit fraud, attitudes and logical justification of wrongdoing. The final part of the paper gives relevant recommendations for harmonizing the ISA with domestic regulatory and legal acts and the practical activity of auditors on the territory of Ukraine.