FAR Practice Note - "Can audit committee support improve auditors’ application of professional skepticism?”
Despite the recognized importance of professional skepticism, auditors’ failure to consistently exercise a sufficient level of professional skepticism continues to be a globally recognized issue. In this study, we seek to gain a better understanding of the role audit committees, who oversee the audit process and can help/aid in improving auditors’ application of skepticism. In a survey of audit practitioners, we found that: audit committee support varies substantially between audit engagements; audit committee support is multifaceted; and the support is often not conveyed to the lower-level members of the engagement team. Given our survey findings, we experimentally investigated whether and how audit committee support being explicitly conveyed to the entire engagement team (by either the partner or audit committee chair) impacts the skeptical judgments and actions of auditors.
We find that an expression of audit committee support conveyed explicitly by the audit partner can increase the skeptical actions of auditors, whereas such an expression of support by the audit committee chair does not. Our findings point to the crucial role audit partners can play in improving auditors’ application of professional skepticism.
Authors
Joseph Brazel is the Jenkins Distinguished Professor of Accounting and a University Faculty Scholar at North Carolina State University, where he teaches undergraduate and graduate courses in auditing and assurance services. His research focuses on professional skepticism, fraud detection, data analytics, non-financial measures, investor and CFO responses to fraud red flags, fraud brainstorming, and judgment and decision-making in auditing. He has published in The Accounting Review, Journal of Accounting Research, Contemporary Accounting Research, Accounting, Organizations and Society, Review of Accounting Studies, Auditing: A Journal of Practice & Theory, and the Journal of Business Ethics. Dr. Brazel is also a monthly contributor at Forbes.com. The Center for Audit Quality (CAQ), Foundation for Auditing Research (FAR), Association of Certified Fraud Examiners (ACFE) Research Institute, International Association for Accounting Education and Research, Institute for Fraud Prevention, Financial Industry Regulatory Authority (FINRA) Investor Education Foundation, Institute of Management Accountants, Institute of Internal Auditors, Ernst and Young, KMPG, and North Carolina State University have all supplied him with grants to support his research. Prior to obtaining his Ph.D., Dr. Brazel was an audit manager with Deloitte.
Anna Gold is Professor of Auditing at Vrije Universiteit Amsterdam and Adjunct Professor at Norwegian School of Economics (NHH). She earned her PhD at the University of Amsterdam. Her research interests are in the judgment and decision-making area, primarily applied to the field of auditing. Her research has focused on the impact of regulatory changes (e.g., fraud consultation, audit firm rotation, and auditor reporting standard changes) on judgments and decisions of auditors, preparers, and financial statement users. She has also examined how auditors and audit firms manage errors and whether varying the error management climate affects auditors’ error reporting willingness and learning. Her current work focuses on how auditors use specialist advice, the communication between auditors and audit committees, and auditors’ use of audit technology.
She has published her research in outlets such as The Accounting Review, Contemporary Accounting Research, Auditing: A Journal of Practice & Theory, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing. Professor Gold currently serves as editor at The Accounting Review (2020-2023) and Maandblad voor Accountancy en Bedrijfseconomie (since 2018). She is a member of the editorial board of Auditing: A Journal of Practice and Theory.
Justin Leiby is an Associate Professor of Accountancy, Disruption & Innovation Scholar, & Professor Ken Perry Faculty Fellow at the University of Illinois Gies College of Business. Justin’s teaching infuses empathic decision-making concepts into auditing, analytics, and risk management, helping students “bring empathy to the data” to better serve stakeholders. Professor Leiby’s research focuses on the motivations and incentives of professionals in areas such as professional skepticism, quality control, human capital, and diversity, equity, and inclusion. Professor Leiby has published research in leading scholarly journals and has presented to a variety of scholarly, regulatory, and professional audiences in the U.S., Canada, and Europe. He earned a doctorate at the University of Illinois and undergraduate degrees in Accounting and German at the University of Pittsburgh.
Tammie Schaefer is an Assistant Professor of Accounting at the University of Missouri – Kansas City where she teaches undergraduate and graduate courses in auditing and tax. Her research focuses on fraud detection, professional skepticism, nonfinancial measures, consultations, and judgment and decision-making in auditing and tax. Her research in these areas has led to publications in The Accounting Review and Contemporary Accounting Research. The Institute for Fraud Prevention, the Center for Audit Quality, KMPG, the International Association for Accounting Education and Research, the University of South Carolina, and the University of Missouri – Kansas City have all supplied her with grants to support her research. In 2013 Tammie received the American Accounting Association Auditing Section’s Best Ph.D. Student Paper Award for her dissertation. She is a member of the AICPA’s Accounting Doctoral Scholars (ADS) Program, and prior to obtaining her Ph.D., Tammie was an audit senior with PwC.