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FAR Practice Note - Inheriting vs. Developing Data Analytic Tests and Auditors’ Professional Skepticism

Auditors’ use of audit data analytic (ADA) tests carries tremendous potential for the quality of financial statement audits and auditors’ application of professional skepticism (e.g., Austin, Carpenter, Christ, and Nielson 2021). As the use of ADA tests becomes increasingly established in practice, auditors will likely transition from developing ADA tests themselves to a situation where they typically inherit ADA tests developed by others. For example, auditors may inherit ADA tests that are developed by other members of their audit team or their firm’s centralized analytics team.

In this study, we argue that inheriting ADA tests, as opposed to developing ADA tests by themselves, hinders auditors’ application of professional skepticism because inheriting decreases auditors’ psychological ownership of the tests. In an experiment where an ADA test identifies a fraud red flag, we find that auditors who inherited the ADA test are less skeptical than those who personally developed the ADA test. We further provide evidence that informing auditors who inherited the ADA test about the test development activities can substantially boost auditors’ skepticism levels. In practice, this development-related information could be conveyed via an ADA test development memorandum preceding the workpapers containing the ADA test. Informing auditors about ADA test development activities will likely become more important as auditors inherit more advanced forms of ADA tests, such as tests employing artificial intelligence technology.


Xiaoxing Li PhD student

Xiaoxing Li is a PhD candidate at the Department of Accounting, Vrije Universiteit Amsterdam. Her research interests are auditors’ judgment and decision making. She is currently working on her PhD dissertation in the areas of audit technologies and auditors’ professional skepticism.

Prof. Joseph Brazel

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 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. Dr. Brazel received the AAA/Deloitte Wildman Medal Award in 2014, presented annually to the publication judged to have made the most significant contribution to the advancement of the practice of accounting. He was engaged by the International Auditing and Assurance Standards Board (IAASB) from 2015-2016 to synthesize and present research related to professional skepticism. Dr. Brazel received the Notable Contribution to the Auditing Literature Award in 2018, which recognizes a published work of exceptional merit that makes a significant contribution to auditing or assurance research, education, or practice. In 2020, he was awarded the Best Paper Award from Behavioral Research in Accounting. He also served on the research team for the Auditing Standards Board of the American Institute of Certified Public Accountants’ (AICPA) Fraud and Going Concern Task Forces from 2022-2023. While presenting his research to many academic audiences, Dr. Brazel has also presented his research related to professional skepticism, data analytics, and fraud detection to the CAQ, FAR, Public Company Accounting Oversight Board, IAASB, Securities and Exchange Commission, ACFE, FINRA, the AICPA’s Auditing Standards Board, as well as many practitioner audiences. He has served on the American Accounting Association’s Notable Contributions to the Accounting Literature Award Selection Committee, Competitive Manuscript Award Committee, COSO Task Force, as well as the AICPA’s Assurance Research Advisory Group, and the CPA Exam’s Professional Skepticism Task Force. Prior to obtaining his Ph.D., Dr. Brazel was an audit manager with Deloitte.

Prof. dr. Anna Gold

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 ReviewContemporary Accounting ResearchAuditing: A Journal of Practice & TheoryAccounting Horizons, Journal of Business Ethics, and International Journal of AuditingProfessor 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.

Dr. Justin Leiby

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.

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