Walking the Talk? Managing Errors in the Audit Profession*

Abstract

Errors reflect unintended deviations from plans or goals and commonly carry negative connotations. Although errors cannot be eliminated, they offer opportunities for learning and innovation. Audit firms employ powerful mechanisms, such as review processes, to prevent or detect audit errors and safeguard their work in the public interest. At the same time, the profession recognizes positive longterm outcomes of errors in terms of continuous learning to enhance auditor skills and, ultimately, audit quality. The current study employs semistructured interviews with Dutch auditors to investigate how they manage the tensions emanating from extant public and regulatory demands for flawless audits while embracing errors as opportunities for learning. Our findings reveal that auditors express a positive attitude toward openly communicating audit errors, but, in substance, they espouse negative emotions and defensive strategies for fear of repercussions. We argue that the excessive emphasis audit firms and oversight bodies place on error prevention conditions auditors into perceiving errors as negative and avoidable events. We assert these attitudes result from the profession's efforts to maintain status and legitimacy in the eyes of the public and the regulator, where any auditor error may shed doubt on auditors' work in the public interest. In sum, our findings indicate that viewing errors as incompatible with audit work makes the profession susceptible not only to repeating errors but also to missing out on opportunities to improve services and to achieve innovation.

Mitigating work conditions that can inhibit learning from errors: Benefits of error management climate perceptions

“…In their interview study on error management in auditing, Gold et al (2022) reveal that in the wake of significant pressure on the profession, audit firms predominantly focus on error prevention, rather than fully embracing the learning potential of errors to improve their performance. Practitioners describe a series of work conditions that appear to influence error learning, such as the potential consequences of errors for the client, the types of errors dealt with, and experiencing emotions in connection with errors, along with experienced time pressure.…”

“…First, auditors, like other professionals, make errors that vary in their consequences (Gold et al, 2022). While all errors, regardless of their consequences, carry learning potential (van Dyck, 2009), prior research has shown that learning is more likely to occur when an error has relatively larger consequences, usually affecting the person committing the error or others, with regard to individuals' health, finances, or social standing (Cannon and Edmondson, 2005;Homsma et al, 2009).…”

“…Fourth, auditors frequently experience time pressure (Pierce and Sweeney, 2004;Gold et al, 2022), rooted in the cyclical and commercial nature of auditing. Auditors are faced with strict filing deadlines, as an audit becomes more profitable when auditors use fewer hours than paid for upfront by the client (i.e., Kelley and Margheim, 1990;DeZoort and Lord, 1997).…”

“…Consequently, audit firms are investing significantly in procedures that foster both error prevention and subsequent learning from errors (e.g., ICAEW, 2016;KPMG, 2016;FRC, 2021). Meanwhile, research on error learning in auditing is still scarce (i.e., Gold et al, 2022;Smeets et al, 2022).…”

“…Prior error learning research indicates that individual learning from errors depends on whether conditions at work are perceived by individuals to positively or negatively affect their self-worth and well-being (Kanfer and Ackerman, 1989;Edmondson, 2004;Tulis et al, 2016). Building on insights from an interview study with auditors on error management by Gold et al (2022), we explore four work conditions that could inhibit auditors' error learning in daily practice: small consequences for errors, routine-type errors, strong negative emotions, and high time pressure. First, we expect that auditors will be less likely to engage in error learning when an error has smaller (rather than larger) error consequences (in line with, i.e., Levitt and March, 1988;Cannon and Edmondson, 2005;Homsma et al, 2009).…”