Level Of Professional Skepticism Research Articles

Clarifying the decision-making mystery: drivers of professional skepticism, ego depletion and overconfidence in independent auditors’ quality of judgment

PurposeThis study aims to investigate the influence of professional skepticism (PS) on the quality of judgment and decision-making (QJDM) among Iranian Certified Public Accountants (CPAs) while considering the moderating effects of ego depletion (ED) and overconfidence (OC).Design/methodology/approachNonprobabilistic sampling was used to collect data through questionnaires and direct engagement with 950 Iranian CPA members, resulting in 300 completed responses for analysis.FindingsThe study confirms that PS significantly positively impacts QJDM among independent auditors. Therefore, a high level of trait PS could improve QJDM. In addition, a majority of auditors experience ED and suffer from OC bias due to their extensive knowledge, experience and self-efficacy. ED and OC play negative moderating roles in attenuating the effect of PS on QJDM.Research limitations/implicationsThe study emphasizes that integrating PS into auditors’ codes of ethics and improving audit work systems can significantly enhance the quality of auditing practices. Furthermore, addressing existence of OC and ED among auditors will further benefit the audit process. Implementing these measures will lead to more accurate assignment and distribution of audit work among independent auditors, ultimately resulting in more reliable and objective auditing judgment and making decisions.Originality/valueThis study not only approves the vital role of PS, ED and OC in the QJDM of independent auditors but also contributes to the existing QJDM literature in auditing.

The Influence of Communication Medium on Professional Skepticism in Auditor-Client Interactions

SYNOPSIS Auditors frequently interact with clients to perform inquiries and must maintain an appropriate level of professional skepticism during these interactions. Inquiries can be performed using various communication mediums. Although prior research has shown that partners prefer traditional face-to-face (FTF) interactions, many younger auditors prefer computer-mediated communication (CMC) (Bennett and Hatfield 2018). The present study examines the effect of four levels of communication media (email, chat, video, and FTF) on auditor skeptical behavior. Results suggest that auditors are more skeptical when interacting with the client by email than by chat, video, and FTF. These findings inform practitioners of what types of auditor-client interactions may negatively impact auditor skeptical behavior. Data Availability: Please contact the author.

Who Rewards Appropriate Levels of Professional Skepticism?

Who Rewards Appropriate Levels of Professional Skepticism?

Automation Bias and the “Goldilocks Effect” in Auditing Blockchain

ABSTRACT Blockchain technology appears to have unique characteristics such as inherent trust, immutability, transparency, and tighter security that might facilitate the audit process. Using a survey of AICPA members, we examine responses to the evaluation of audit evidence related to management assertions in a blockchain-enabled environment. We posit three possible effects pertaining to reliance on audit evidence in blockchain-enabled environments: (1) Goldilocks Effect (no automation bias) or the ideal scenario where auditors exhibit “just right” levels of professional skepticism and due care resulting in an optimal level of auditing; (2) Halo Effect or positive automation bias, which potentially results in over-reliance on evidence and, in turn, underauditing and; (3) Hype Effect or negative automation bias, which potentially results in under-reliance on evidence and, in turn, overauditing. Our results suggest that respondents to our survey are predominantly influenced by the Halo Effect, indicating a propensity for positive automation bias across management assertions.

Who Rewards Appropriate Levels of Professional Skepticism?

Who Rewards Appropriate Levels of Professional Skepticism?

Determinants of whistleblowing intentions of accountants: a middle range theoretical perspective

PurposeThe purpose of this study is to examine the key predictors of whistleblowing intention of accountants within the organization. By relying on the benefit-to-cost differential theory, this study examines the influence of professional skepticism, cognitive styles and perceived organizational support on whistleblowing intentions while controlling for the effect of some demographic variables on the estimated results. Further, the authors ascertain whether the threat of retaliation moderates the relationship between professional skepticism and whistleblowing intentions.Design/methodology/approachData was obtained from professional accountants licensed by the Institute of Chartered Accountants, Ghana by means of self-administered questionnaires. The partial least square-structural equation modeling technique was used to test for the hypothesized relationships in this study.FindingsThe results of this study suggest the intention to report wrongdoing within the organization is influenced by individuals’ level of professional skepticism, cognitive style and the perception that they will have the backing of their organization in reporting wrongdoing. Moreover, the authors also find females and individuals who have advanced in age to have greater motivation to report wrongdoing in the organization.Originality/valueThis study contributes to whistleblowing literature by highlighting the effect of professional skepticism on whistleblowing intentions. Also, this study provides empirical support for the applicability of the benefit-to-cost differential theory to the whistleblowing literature.

The Case of Undetected Frauds: Can Audit Firm Policies or Highlighting the Fraud Examiner’s Role Reduce Juror Assessments of Auditor Negligence?

This study explores two potential safeguards against liability when auditors exercise professional skepticism, but do not detect a fraud: (1) a firm policy requiring a specific level of professional skepticism in high-risk audit areas and (2) providing jurors with key differences between the role of a fraud examiner and the role of an auditor as a reference point for judging the auditor’s performance. We find that describing a specific firm policy to jurors does not significantly decrease negligence findings for auditors who do not detect a fraud. However, providing the role of a fraud examiner as a reference point (e.g., scope of work, testing approaches) does significantly decrease negligence findings. Encouragingly, we also find some evidence that jurors are apt to decrease negligence findings when auditors exercise higher skepticism, but ultimately do not detect a fraud.

A Person-Situation Approach to the Examination of Professional Skepticism: Consideration of Time Pressure and Goal Framing

Regulators believe increased skepticism improves audit quality (e.g., PCAOB 2011; Frazel 2013), and a lack of skepticism contributes to audit deficiencies (e.g., Doty 2011a, 2011b; PCAOB 2012). Therefore, in order to achieve as great a level of professional skepticism as appropriate in each audit situation, it is important to more thoroughly understand the various influences on skepticism. While prior research suggests personality traits and state (situational) factors influence professional skepticism (e.g., Hurtt 2010; Nelson 2009), this literature tends to focus on either skepticism as a trait (e.g., Hurtt 2010) or state factors that influence skeptical behavior (e.g., Bowlin et al. 2012), rather than viewing state skepticism as a separate component of the attitude of skepticism. In our experiment using professional auditors, we measure and disentangle the trait and state components of professional skepticism, and examine the influence of both on auditor behavior. Furthermore, we examine whether two situational factors, time pressure and goal framing, affect state skepticism. We find that auditors higher in state professional skepticism display a higher level of skeptical behavior, and that an increase in state skepticism has a greater effect on auditors with low trait skepticism than high trait skepticism. We also find a positive relationship between time pressure and state skepticism. We offer conclusions for practice and research.

The effect of an Audit Judgment Rule on audit committee members’ professional skepticism: The case of accounting estimates

Changes to the audit environment have led to suggested changes to the regulatory framework for evaluating auditors’ judgments including the introduction of an Audit Judgment Rule (AJR), whereby courts and inspectors will not second-guess auditors’ reasoned judgments provided they are made in good faith and in a rigorous manner. We examine the potential effect of the AJR on the skepticism of Audit Committee Members (ACMs) in terms of the extent to which they ask probing questions to external auditors, CFOs and Heads of Internal Audit concerning an accounting estimate. This level of professional skepticism is a critical element of the duties of an ACM in the oversight of the financial reporting and auditing processes, especially for complex and future orientated accounting estimates. Because an AJR would likely encourage adoption of innovative audit procedures, we further examine the effect of these procedures, as compared to standard procedures, on ACMs’ skepticism given an AJR. Our findings show that an AJR increases ACMs’ perceived accountability in ensuring the reasonableness of the financial statements, and that a movement towards more innovative audit procedures under an AJR framework increases ACMs’ perceived overall comfort regarding the treatment of the accounting estimate. On average, these factors do not affect the overall level of ACMs’ skepticism in terms of the number of questions asked or the extent to which the questions are probing. However, these results differ depending on the demographic background of the ACM participants.

Research on Auditor Professional Skepticism: Literature Synthesis and Opportunities for Future Research

SUMMARYBoth researchers (e.g., Nelson 2009) and regulators (e.g., the PCAOB) have emphasized the importance of exercising the appropriate level of professional skepticism when conducting an audit. However, professional skepticism remains a hard concept to define and measure. In addition, it is often difficult to determine if a lack of skepticism is the primary cause of audit deficiencies and if so, what factors led to the lack of skepticism. The purpose of this paper is threefold: (1) extend the work of Nelson (2009) by synthesizing research related to auditors' professional skepticism to identify antecedents to both skeptical judgment and skeptical action, (2) identify areas where research is lacking on a particular dimension and suggest avenues for future research, and (3) discuss the implications of research findings for regulators and auditing professionals. We adopt two foundational aspects of the framework introduced in the seminal paper by Nelson (2009), which proposes that lack of skepticism can either be the result of a failure in problem recognition (lack of skeptical judgment) or a failure to act on a problem recognized (lack of skeptical action). We organize research studies into four categories of antecedents: studies relating to auditor characteristics, evidence characteristics, client characteristics, and environmental characteristics. We find that while research studies provide insights into both the antecedents to skeptical judgments and actions, the majority of research efforts to date have focused on the antecedents to skeptical judgments and on auditor characteristics in particular. Research findings have implications for practice, but in order to understand how skeptical judgment translates into skeptical action, additional research on skeptical action will need to be conducted.

The impact of cultural environment on entry-level auditors’ abilities to perform analytical procedures

We focus on the impact of three of Hofstede’s cultural dimensions, power distance, uncertainty avoidance, and individualism, on the results of analytical procedures conducted by entry-level auditors in Mexico and the U.S. Analytical procedures are ideal for this research as they require auditors to use professional judgment and appropriate levels of professional skepticism, abilities related to all three cultural characteristics. We find no other study investigating the impact of culture on the application of auditing procedures similar across the studied cultures. We find cultural characteristics do not affect the participants’ abilities to predict income statement balances, but they may influence the ability to predict changes in balance sheet accounts. We also find culture is associated with differences in risk assessments. Our results indicate that participants rarely differentiate accounts that change according to expectation from those that change contrary to expectation, but rather alter their risk assessments to match the direction of balances that increase or decrease.