Do Stronger Wise‐Thinking Dispositions Facilitate Auditors' Objective Evaluation of Evidence When Assessing and Addressing Fraud Risk?*

Abstract

The objective evaluation of evidence is imperative for audit effectiveness and the proper exercise of professional skepticism. However, numerous studies suggest that auditors fail to evaluate evidence objectively when assessing or addressing the risk of material misstatement due to fraud. We develop theory to predict that auditors do evaluate evidence objectively but only when they have stronger wise‐thinking dispositions (WTDs), a construct that is new to the audit literature. We define WTDs as the tendency of individuals to naturally engage in the balanced revision of beliefs and doubts about target phenomena by thinking openly and reflectively about evidence. We report prediction‐consistent results from two experiments that measure the strength of participants' WTDs and manipulate whether the underlying evidence is less or more indicative of fraud. The experimental results also document that auditors vary considerably in WTD strength and collectively demonstrate the reproducibility of audit judgment‐quality benefits of stronger WTDs. We further validate the WTD construct in auditing using confirmatory bi‐factor analyses to show that it has one higher‐order general factor along with several subfactors. Overall, our theory and results advance the literature by identifying WTDs as a determinant of auditors' ability to objectively evaluate evidence. In addition, our findings have implications for standard setters and audit firms as quality control standards and audit working paper review processes might benefit from revisions that take into account that auditors do not objectively evaluate evidence unless they have stronger WTDs.

Driving financial results is not the only priority! An exploration of the future role of chief financial officer: a grounded theory approach

“…P16, P17 and P20 provided more clarity on integrity to cover good governance, business ethics and morality, with some participants also sharing their previous employment experiences. The CFO’s decision-making process and actions are consistently associated with integrity and business ethics, according to Brewster et al (2021), Fleischman et al (2022) and Sidaway et al (2023). CFOs are uniquely placed within organizations to lead corporate governance, which establishes a set of rules and practices that govern how a company operates and aligns the interests of all stakeholders.…”

Internal Audit Evaluation and its Optimization in Universities under the Great Intelligence and Cloud Technology

“…Zamboni, Y. et al investigate whether an increase in the audit risk of local government activities in Brazil affects rent extraction, with estimates showing that an increase in the audit risk of 20 points corresponds to a decrease of 10 percentage points in the proportion of resources involved in procurement corruption [20]. Brewster, B. E. et al reported an experiment that found large differences in the strength of auditors' propensity to think wisely (wtd) and demonstrated that the audit judgment quality effect of stronger wtd was reproducible [21]. This paper proposes the internal audit performance evaluation system of colleges and universities based on the balanced scorecard and constructs the corresponding strategy map and evaluation indexes.…”

An examination of auditor hypothesis testing strategies in ‘tone at the top’ evaluations: Evidence of diagnostic knowledge structures

“…Although the audit literature examines how auditors evaluate behavioural attributes, such as competence, of internal and other external auditors (e.g., Brown, 1983; Han et al, 2011; Harding & Trotman, 2009; Kennedy & Peecher, 1997; Margheim, 1986; Schneider, 1984; Tan & Jamal, 2001; Tan & Jamal, 2006), considerably less research has examined how auditors test such characteristics of client management. Research that has examined characteristics of client management (e.g., Brewster, 2016; Brewster et al, 2021; Hirst, 1994) has focused on the evaluation of evidence made available to auditors, not the steps auditors take to actively generate such evidence. Better understanding these steps can enable development of decision aids to assist in the crucial evidence gathering process.…”