SUMMARY: Professional skepticism is an important concept in audit practice, as evidenced by its prominence throughout the auditing standards. In this paper I propose that professional skepticism is a multi-dimensional individual characteristic. As an individual characteristic, professional skepticism can be both a trait (a relatively stable, enduring aspect of an individual) and also a state (a temporary condition aroused by situational variables). I develop a scale designed to ex ante measure an individual’s level of trait professional skepticism based on characteristics derived from audit standards, psychology, philosophy, and consumer behavior research. I conduct a rigorous and iterative scale validation process using students and professional auditors. The final 30-item professional skepticism scale with instructions for use is included, as well as suggestions for future research.

SUMMARY Both 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.

This exploratory study presents evidence on the general characteristics, risks, and controls of all non-profit organizations (NPOs) reporting a fraud (asset diversion) between 2009 and 2015. Compared to NPOs that did not report a fraud, the fraud-reporting NPOs were larger, older, more likely to be a 501c3, and urban. Data from the Form 990 provided information on the risks and controls present. Risks were positively associated with higher levels of reported fraud for all sizes of NPOs. However, controls were more often related to lower levels of fraud only for larger NPOs, with the level of controls present increasing with the size of the organization. We also identify new variables that should add to our understanding and also variables used in prior studies that may not have enough variance to add any insight. Based on the results from this study, we provide suggestions for future research.