Evidencing Professional Skepticism in the Time Budget

Principal Investigator: Joe Brazel

Sponsor: Institute for Fraud Prevention

Award Period: 12/01/2016 - 04/30/2018

Amount: $10,000

Description: Efforts to enhance professional skepticism in the auditing profession should increase the detection of fraud and, in turn, improve audit quality. However, questions exist as to how professional skepticism can be evidenced in the audit documentation. Recent research by Dr. Brazel identifies that a barrier to professional skepticism is hindsight bias that exists in supervisors’ evaluations of skeptical behavior. In short, evaluators penalize staff who exercise appropriate levels of professional skepticism, yet do not identify a misstatement. One factor causing the hindsight bias is that exercising professional skepticism typically causes staff to go over budget due to additional time devoted to testing. These issues bring us to two research questions that will be addressed in this study: (1) Is the aforementioned hindsight bias reduced when the staff member formally addresses the budget overage in the audit budget file as resulting from the application of professional skepticism? (2) Can documentation in the budget file yield benefits in addition to a reduction in hindsight bias?