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

Abstract

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.

The next best thing: Social presence and accountability's impact on auditor professional skepticism

“…In recent years the PCAOB has noted that auditors are not exhibiting enough professional skepticism (2011; 2016; 2018). Prior literature has examined various solutions to this problem such as: audit partner style (Stevens, Moroney, and Webster 2019), audit partner rotation (AICPA 1992; Tan 1995; Favere‐Marchesi and Emby 2005; Hamilton, Ruddock, Stokes, and Taylor 2005; Carey and Simnett 2006; CAQ 2008; Chen, Lin, and Lin 2008; Fargher, Lee, and Mande 2008, Manry, Mock, and Turner 2008; Chi, Huang, Liao, and Xie 2009; Bedard and Johnstone 2010; Brazel, Carpenter, and Jenkins 2010; Hatfield, Jackson, and Vandervelde 2011; Daugherty, Dickens, Hatfield, and Higgs 2012; Litt, Sharma, Simpson, and Tanyi 2014) and audit firm rotation (Loebbecke, Eining, and Willingham 1989; Arrunada and Paz‐Anes 1997; Blouin, Grein, and Rountree, 2007; Deis and Giroux 1992; Bazerman, Lowenstein, and Moore. 2002; Geiger and Raghunandan 2002; Johnson, Khurana, and Reynolds 2002; Myers, Myers, and Omer, 2003; Carcello and Nagy 2004; Ghosh and Moon 2005; Jackson, Moldrich, and Roebuck 2008; Davis, Soo, and Trompeter 2009; PCAOB 2011; Kwon, Lim, and Simnett 2014; Lennox, Wu, and Zhang 2014; Cameran, Francis, Marra, and Pettinicchio 2015).…”

Analytical Analysis for the Impact of Fair Value Accounting on Audit Quality Practices

“…Skepticism throughout the audit process increases not only the likelihood of detecting fraud but also reduces the risk that fraud will be attempted (Nelson, 2009). Furthermore, concerns over professional skepticism exercised by auditors are increasing due to lack of sufficient and appropriate evidence gathered to assure management's assumptions when dealing with complex accounting such as impairment and fair value measurements (Stevens et al, 2019). The amounts of estimates are uncertain and supporting evidence is not concrete (Bratten et al, 2013).…”

The Role of Motivation Mediates the Effect of Partner Style and Team Identity Salience on Professional Skepticisms

“…Professional auditor skepticism is important, because it determines the high quality of audits [1]. However, in practice the regulators reported their concern about the lack of professional skepticism carried out by auditors [2]. PCAOB (Public Company Accounting Oversight Board), expressed their concern, because the auditors did not consistently apply professional skepticism [3].…”

“…High-quality audits are determined by the right level of professional skepticism, because skepticism encourages auditors, to recognize errors and potential deviations, and to investigate misstatements [6]. Partner style can influence auditor skepticism, because it reflects the way partners communicate messages, the importance of audit quality and skepticism to engagement team members [2]. When a partner states a message about the client's management views, there is a low possibility of fraud, the auditor will show a higher level of skepticism [7].…”

“…The team's identity will influence auditor skepticism. When the team identity salience is high, and partner style is supportive, the auditor shows high skepticism [2]. When auditors see their team as a vertical team, a strong team identity will improve the auditor's way of responding to partner style [8], but when the team's identity stands out in the context of minimizing inspection risks, and when they are responsible to partners, a high team identity salience can reduce auditor skepticism [9].…”