Auditor Mindsets and Audits of Complex Estimates

Griffith, Emily E.; Hammersley, Jacqueline S.; Kadous, Kathryn; Young, Donald

doi:10.2139/ssrn.2474365

Cited by 77 publications

(142 citation statements)

References 77 publications

(67 reference statements)

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“…Griffith, Hammersley, Kadous and Young (2015) argue that critical evaluation of evidence is more important than increased doubt or increased demand for evidence to improve audit quality. Griffith, Hammersley, Kadous and Young (2015) argue that critical evaluation of evidence is more important than increased doubt or increased demand for evidence to improve audit quality.…”

Section: Discussionmentioning

confidence: 99%

External auditors' evaluation of a management's expert's credibility: Evidence from Australia

2020

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The Australian Securities and Investments Commission (ASIC) has concerns that auditors are not adequately evaluating the reliability of the work of management's experts (MEs). We interviewed nine experienced auditors to understand how auditors evaluate MEs. We observe that some factors specified by auditing standards, such as an ME's competency in accounting standards, geographical location of the subject matter or the ME, and the sourcing of an ME play a minor role in an auditor's evaluation of an ME's credibility. In contrast, the reputation of an ME's firm is a key determinant. Auditors corroborate information from multiple sources, but verify only the ME's professional qualification. We identify three potential reasons for the ASIC's concerns: "Experts are considered cognitive authorities,""Documentation is the key," and "Move from a risk-based approach to a checklist approach."

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Section: Discussionmentioning

confidence: 99%

External auditors' evaluation of a management's expert's credibility: Evidence from Australia

2020

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“…According to the partners of the participating audit firms who assisted in the development of the case materials, the task requires the execution of professional judgment and lends itself to the measurement of skeptical judgment. Moreover, previous research has used the audit of intangible assets when assessing auditor skepticism (Griffith, Hammersley, Kadous, & Young, ; Rasso, ).…”

Section: Methodsmentioning

confidence: 99%

Professional skepticism: The combined effect of partner style and team identity salience

Stevens¹,

Moroney

Webster

2019

Int J Auditing

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Although essential in the delivery of a high‐quality audit, regulators report their concerns about an apparent lack of professional skepticism exercised by auditors. In an experiment, we use regulatory focus and social identity theories to examine how the style used by a partner (supportive or unsupportive) when allocating a task and team identity salience (high or low) combine to impact skepticism. We find that when team identity salience is high, auditors demonstrate greater skepticism when a partner's style is supportive rather than unsupportive. In additional analysis, we also consider how motivation moderates the effect of partner style and team identity salience on skepticism and retest our hypotheses using a different measure of skepticism. Our results suggest that team identity salience is important when considering the effect of partner style on professional skepticism.

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“…To mitigate these cognitive or motivational biases and enhance the professional skepticism when auditing accounting estimates, recent studies have examined the use of various debiasing strategies. In addition to the efforts targeted at changing auditors' ways of thinking (e.g., Backof, Bamber, & Carpenter, ; Griffith, Hammersley, Kadous, & Young, ; Plumlee, Rixom, & Rosman, ; Rasso, ), another strategy aims to change auditors' motivations. In this latter line of research, a central area of interest is the creation of accountability (e.g., Kennedy, , ), such as through different forms of disclosure or justification requirements.…”

Section: Introductionmentioning

confidence: 99%

Real effects of reporting key audit matters on auditors' judgment and choice of action

Asbahr

Ruhnke

2019

Int J Auditing

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This experimental study analyzes whether reporting an accounting estimate as a key audit matter (KAM) can influence auditor judgment about the accounting estimate and the corresponding action. We find that skeptical action in the form of proposed adjustment amounts is significantly lower when the accounting estimate is reported as a KAM. Thus, the disclosure of a KAM can serve as a moral license to waive an adjustment. Taking into account that the KAM disclosure does not affect auditors' skeptical judgments in the form of a reasonableness assessment of the accounting estimate, our results indicate the existence of a judgment–action gap. Furthermore, implicit client pressure does not enlarge the moral licensing effect of the KAM disclosure. We also find evidence that audit effort is not affected by reporting a KAM. Overall, our study contributes to the current debate about the audit reporting model by showing that reporting a KAM might have unintended “real effects” on auditors' actions.

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Auditor Mindsets and Audits of Complex Estimates

Cited by 77 publications

References 77 publications

External auditors' evaluation of a management's expert's credibility: Evidence from Australia

External auditors' evaluation of a management's expert's credibility: Evidence from Australia

Professional skepticism: The combined effect of partner style and team identity salience

Real effects of reporting key audit matters on auditors' judgment and choice of action

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