Who Rewards Appropriate Levels of Professional Skepticism?

Principal Investigator: Joe Brazel

Sponsor: Institute for Fraud Prevention

Award Period: 06/01/2015 - 01/31/2017

Amount: $10,000

Description: *A recent synthesis of research on auditor professional skepticism asks the basic question: "Are the audit firms currently rewarding skeptical inquiries, regardless of outcome?" (Hurtt et al. 2013, 56). Our recent research finds that auditors tend to reward (higher evaluations) appropriate skepticism that yields a misstatement, yet punish the same skeptical behavior when it does not yield a misstatement. We find this outcome effect on the evaluations of skeptical behavior to be pervasive, occurring even when the skeptical auditor consults extensively with their superior. We also find that senior auditors are more likely to identify and convey fraud red flags (i.e., evidence inconsistencies) to their managers when they have experienced managers in practice that have rewarded appropriate skepticism even in cases when a misstatement is not identified. In short, managers who reward or are supportive of appropriate skeptical behavior regardless of outcome appear to develop staff that are more likely to detect and convey evidence inconsistencies to engagement management (i.e., exhibit appropriate levels of skepticism). In this study, we pose the following research question: What personality traits, experiences, and knowledge-bases are associated with managers that reward appropriate professional skepticism in cases when no misstatement is identified?