The Role of Tacit Knowledge in Auditor Expertise and Human Capital Development

Abstract

In this study we investigate how tacit knowledge influences auditor expertise and human capital development. While prior research provides evidence that tacit knowledge is a key determinant of experienced auditors’ annual performance evaluations (Tan and Libby [1997]), we posit and find that tacit knowledge differentiates more from less promising auditors early in their careers, in terms of leadership potential. Tacit knowledge therefore plays a previously undocumented, forward-looking role in inexperienced auditors’ expertise development. In addition, we predict and find evidence supporting three direct organizational consequences of audit supervisors’ tacit knowledge: (1) it improves development of their subordinates’ tacit knowledge, (2) it increases the relative value they place on subordinates’ tacit versus technical knowledge when assessing annual performance, and (3) it increases the firm commitment of subordinates with relatively high tacit knowledge. Collectively, these findings contribute to the audit expertise, human capital development and incentive contracting literatures in accounting.