Information Sharing during Auditors' Fraud Brainstorming: Effects of Psychological Safety and Auditor Knowledge

Abstract

SUMMARY Conducting a fraud brainstorming session during planning assists with risk-based tailoring of the audit. An effective session should include a team environment in which all members are willing to share information to appropriately calibrate the collective assessment of fraud risk. We report the results of a study (Gissel and Johnstone 2017) in which we manipulate partner leadership in terms of engendering a safe (unsafe) psychological environment whereby subordinates are (are not) encouraged to speak up about fraud-relevant information. Participants are audit staff and seniors, and through the experimental case (based on the Krispy Kreme Doughnut Corporation fraud) they come to realize that they alone possess fraud-relevant information critical to the team's calibration of fraud risk. These auditors participate in a simulated brainstorming session containing the partner leadership manipulation and indicate changes in their willingness to share the fraud-relevant information with the team. We find that less-knowledgeable auditors become more willing to share their privately known, fraud-relevant information when the partner engenders a safe psychological environment as compared to an unsafe environment. In contrast, more-knowledgeable auditors are impervious to the relative psychological safety engendered by the partner; these individuals are equally willing to speak up regardless of the partner's leadership behavior. Data Availability: Contact the authors.

It Goes without Saying: The Effects of Intrinsic Motivational Orientation, Leadership Emphasis of Intrinsic Goals, and Audit Issue Ambiguity on Speaking Up

“…Our research also contributes to the literature investigating determinants of audit team information and knowledge sharing (e.g., Rich et al ; Vera‐Munoz et al ; Gold et al ; Nelson et al ; Gissel and Johnstone ; Nelson and Proell ; Dennis and Johnstone ). While this research indicates that auditors do not always speak up to share issues, we identify a theory‐based path for improving information sharing by tapping into what audit leadership is already responsible for doing—motivating audit staff.…”

“…Our paper makes several additional contributions. First, while prior research indicates that auditors do not always speak up to share information (e.g., Gold et al ; Nelson et al ; Gissel and Johnstone ), there are relatively few studies examining informal upward communication. Our research contributes to this line of research by examining two important environmental determinants of information sharing.…”

When the Client Is a Former Auditor: Auditees' Expert Knowledge and Social Capital as Threats to Staff Auditors' Operational Independence

“…Bennett and Hatfield () report that staff‐level auditors often perceive themselves as younger, less experienced, and less knowledgeable than client management, and consequently refrain from requesting additional evidence. Furthermore, less experienced auditors may be hesitant to raise audit issues to the attention of audit engagement leadership (Kadous et al ) and to share fraud‐relevant information during brainstorming (Gissel and Johnstone ).…”

The ins and outs of professional skepticism

“…Dichotomizing variables relating to individual differences is rather common in accounting research (e.g.,Gissel and Johnstone 2017;Quadackers et al 2014). Previous research does not document a scale score that is indicative of high levels of trait PS, although it is common practice to use the median as cut point.…”

“…Dichotomizing variables relating to individual differences is rather common in accounting research (e.g.,Gissel and Johnstone 2017;Pennington, Schafer, and Pinsker 2017;Sundgren and Svanström 2014;McAllister et al 2018;Quadackers et al 2014). Therefore, we rerun the analysis with PS as a dichotomous variable, indicating high or low trait skepticism (split based on the median score of HPS, PMC, and RIT).…”