Research Insights—Auditor Professional Skepticism Part II: Mindset, Prompts, and Environmental and Contextual Factors
In September 2015, the International Auditing and Assurance Standards Board (IAASB) and this research team agreed to conduct a project that involved summarizing academic research in the area of auditor professional skepticism from 2013 to 2015. The work was intended as an update of the auditor professional skepticism literature since the syntheses performed by Nelson (2009) and Hurtt et al. (2013).
The research forms part of the IAASB project on how to more effectively respond to issues related to professional skepticism. Three specific deliverables formed the academic research: a summary listing relevant research related to professional skepticism, a presentation of significant observations to the IAASB at its December 2015 meeting, and an executive summary of the project. The full summary and related documents can be found on the IAASB’s December 2015 Meeting Page.
Mindset and Prompts (Independence of Mind/Objectivity)
Several recent studies have investigated altering the auditor’s mindset as a potential mechanism to increase professional skepticism. Bauer (2015) finds that increasing the salience of auditors’ professional identity by having them think about professional norms and values increases professional skepticism. Kadous and Zhou (2015) explore auditors’ intrinsic motivations for their job. The authors find prompting auditors’ intrinsic motivation increases professional skepticism, improves judgment on complex audit tasks, and reduces over-reliance on specialists. Wolfe et al. (2015) examine intuitive versus analytical thinking and find that auditors thinking intuitively were more skeptical. They conclude that when auditors crowd out intuition in their cognition, they have the propensity to become less skeptical. Parlee et al. (2015) consider a metaphor prompt to change auditors’ mindsets. They find that having auditors read a story that includes a metaphor that focuses on the potential deceit of those that provide information makes auditors more skeptical when completing an audit task.
- Certain prompts may induce greater professional skepticism in auditors.
- The effectiveness of prompts could be further tested in audit training sessions with real client evidence and audit documentation.
- Effective prompts could be incorporated into audit software (or be an optional procedure considered during planning). Field experiments (with some audits using the prompts and others not) could be performed to further determine the effects of the prompts on auditor professional skepticism mindsets.
Environmental and Contextual Factors
Recent research has explored the impact of several environmental factors on exercising professional skepticism. The majority of these studies relate to the characteristics of the client, the environment in the firm, or current standards/firm guidance. For example, Bennett and Hatfield (2013) conduct an experiment where staff-level auditors interact with an actor playing the role of client management and find that less professional skepticism is exercised (reduced evidence collection) to avoid interactions with management when the client is intimidating. Similarly, Olsen and Stuart (2015) find in high-risk settings, client personality/behavior is irrelevant to the application of professional skepticism, but in low-risk settings, an overtly nice/available client induces greater professional skepticism in the auditor.
Regarding the impact of the environment within the firm, Westermann et al. (2015) conducted interviews with practicing audit partners and note that partners expressed concerns that the use of technology may lead to reduced professional skepticism as staff don't learn how to "read people," think critically, and probe for answers in the same way they used to. With regard to standards/firm guidance, Cohen et al. (2015) experimentally test the impact of word choice in guidance. In the study, auditors are provided with audit guidance that requires them to either obtain evidence to “support,” “oppose,” or “support and oppose” management’s assertions about a fair value measurement. The authors find that auditors asked to both support and oppose (balanced frame) were more skeptical (i.e., offered a lower fair value estimate).
- The characteristics and actions of management may impact professional skepticism.
- Audit partners are concerned that the current environment may create some professional skepticism-related competency deficiencies in staff.
- The framing/word choice of tasks alters the mindset or approach auditors take, leading to more or less professional skepticism.