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2018B02 – Culture controls in audit firms
Project Number – 2018B02

2018B02 – Culture controls in audit firms

What?

What?

This study investigates the way audit firms in the Netherlands use culture controls, the extent to which these culture controls result in employees internalizing the organizational objective of high audit quality, and the factors that influence this relationship. More traditional employee controls, such as pay-for-performance and subjective performance evaluation, have not resulted in satisfactory high levels of audit quality (Rapport OOB-accountantsorganisaties 2017). Audit organizations therefore have been using and emphasizing culture controls in their Management Control Systems.

Why?

This research highlights several important themes that can be adapted for education of future and current control system designers and audit managers. This research investigates the importance of culture control. This study provides insights into the unique incentive problem that audit firms face when it comes to motivating their employees. By examining the approach to Culture Controls of different audit firms, the audit firm can also learn from each other’s best practices.

This study provides unique insights into employee motivation to provide high audit quality. This is significant because prior work has shown that auditors’ directionally motivated and biased reasoning to justify acceptance of management-preferred conclusions is robust to interventions such as evaluating the quality, rather than mere acceptability, of management’s accounting and to actively prompting auditors to “step into the shoes” of investors when judging how material proposed audit adjustments are to investors.

New Academic Board Member: Mark Peecher

We are happy to announce that Mark Peecher will succeed Robert Knechel as an Academic Member of the FAR Board, as of March 27, 2026. Mark is Executive Associate Dean of Faculty and Research at Gies College of Business of the University of Illinois Urbana-Champaign, and the inaugural holder of Arthur R. Wyatt Endowed Chair in Accountancy. Previously, he served for many years as their Deloitte Professor of Accountancy. He holds a Ph.D. in accountancy and has a distinguished career and impressive track record in auditing research. Mark has contributed to FAR through his involvement in two of the research projects and he has demonstrated engagement with the organization’s mission and community. We are grateful that Mark has accepted this position and look forward to his contributions. As we welcome Mark, we also extend our deep appreciation to Robert Knechel, who will end his term after many years of dedicated service. We express our sincere gratitude to him for his longstanding commitment and valuable contributions to FAR.
The Effect of Audit Culture on Audit Quality
In 2014, the professional body for accountants in the Netherlands (NBA) indicated that audit quality did not live up to the public’s expectations. One of the main corrective measures suggested by the NBA was an improvement in audit culture (NBA, 2014). Although audit culture can be an important determinant of audit quality, the extant academic literature has not payed much attention to audit culture. This paper provides an overview of the literature on audit quality and audit culture as a determinant of audit quality
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Well‑calibrated professional skepticism: how culture and auditor values drive better audit judgments
This study introduces the concept of well-calibrated professional skepticism, auditors’ ability to respond critically when misstatement risk is high without overreacting when risk is low. Using interviews, experiments, and surveys with 399 auditors, the research shows that well-calibrated skeptics make better judgments and plan appropriate actions, improving audit quality.
Auditor pride, however, does not significantly influence judgment. Key drivers of calibrated skepticism include supportive leadership, sufficient resources, and personal values such as truth-seeking and contributing to society.
The findings suggest that audit firms can strengthen skepticism through cultural controls and by hiring auditors who value integrity and societal impact.
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The effects of information acquisition effort, psychological ownership, and reporting context on opportunistic managerial reporting
This study examines how the effort managers expend to acquire information influences their reporting behavior. Greater effort can create psychological ownership, which may lead to two opposing effects: a sense of deservingness that increases opportunistic reporting, or a sense of responsibility that reduces it. Using a budget reporting experiment, the author manipulates (1) whether managers earn information through effort or receive it effortlessly, and (2) the salience of honesty in the reporting context (framed as a business vs. ethical dilemma).
Results show that when honesty is less salient, managers who earn information report more opportunistically (add more slack) than those who are endowed with information. However, when honesty is emphasized, this effect is mitigated. A supplemental experiment confirms that psychological ownership—and its impact on reporting—can also be induced through subtle cues like personalized messaging. The findings suggest that reducing information acquisition effort or increasing honesty salience (e.g., through ethical framing or codes of conduct) can help curb opportunistic reporting.
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Well‑calibrated professional skepticism: its benefits on auditor responsiveness to the risk of material misstatement and its roots in culture controls and auditor values
Using a multi-method approach, we first introduce the construct of well-calibrated professional skepticism and identify how it facilitates auditors’ response to heightened risk of material misstatement without also raising costly false alarms. We then draw on the management and management accounting literatures to identify several audit firm “soft” culture controls and auditor-specific characteristics that we predict, and find evidence consistent with being, antecedents of well-calibrated professional skepticism. We position well-calibrated professional skepticism as an internalized value and connect it to the psychology literature on calibration. We discuss how audit firms can improve the portion of their audit professionals who are well-calibrated professional skeptics by improved selection during recruitment of human talent and by investment in culture controls that credibly reveal a commitment to “walking the talk” when it comes to audit quality.
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The Effect of Audit Culture on Audit Quality
In this research note, we discuss why designing a management control system that directs effort towards audit quality is so tricky. We discuss the different ways that audit firms motivate effort and highlight “culture controls” where, through selection and socialization, audit firms create a workforce of auditors that value and, therefore, work hard to ensure audit quality. We also discuss the importance of directing auditors’ efforts towards audit quality and distinguish three critical elements. Auditors must: (1) understand the importance of audit quality, (2) possess the right tools and capabilities, and (3) prefer those tasks that lead to audit quality. We share some preliminary results of our research that examines how successful five Dutch audit firms are at this non-trivial task. This provides firms with the knowledge to critically examine and improve their own current management control system. Our study is relevant for Dutch audit firms as well as for auditors all over the world.
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Project info

Project Lead

Prof. Jasmijn Bol

Research team

Dr. Katlijn Haesebrouck
Prof. Mark Peecher
Prof. Jasmijn Bol
Prof. dr. Isabella Grabner

Involved University

Maastricht University | Tulane University | University of Illinois | WU Vienna

Theme(s)

Audit Firm Culture and Organizational Learning
Project Number – 2018B02

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