The effects of self‐esteem and perspective‐taking on group auditor's review actions

Abstract

We examine the effects of self‐esteem and perspective‐taking—both separately and jointly—on group auditors' selection of the next steps after reviewing the findings of a component auditor on a warranty provision. These individual and situational determinants of professional scepticism are important factors for enhancing audit quality in multinational group audits given the concerns about group audit quality raised by regulators. We hypothesize that group auditors who have high self‐esteem and are prompted to take the regulator's perspective plan more effective next steps after reviewing the work of component auditors. In an experiment with 103 audit partners and managers, we measured self‐esteem and manipulated a perspective‐taking prompt. As hypothesized, we find that group auditors who have high self‐esteem or who are prompted to take the regulator's perspective plan more effective next steps than those with low self‐esteem or who are unprompted. We find no support for an interaction between self‐esteem and perspective‐taking in the context of our study. Audit firms can use the insights from our study in selecting group auditors based on self‐esteem and developing firm policies to consider the regulator's perspective when reviewing the findings of component auditors to enhance audit quality in multinational group audits.