FAR Working Paper 2023/03-13: Thinking Outside of the Box: Engaging Auditors’ Innovation Mindset to Improve Auditors’ Fraud Actions in a Data-Analytic Environment
Data analytics can help auditors effectively respond to the risk of material misstatement due to fraud. However, harnessing this potential may require auditors to adopt an innovation mindset as urged by firms and regulators. Innovation is defined as creativity in action. Building on the creativity literature, we develop an innovation mindset designed to improve auditors’ ability to generate effective fraud audit procedures when interpreting data analytic output. Further, with the advent of data analytics, auditors are asked to provide value-added, client insights, in addition to their primary goal of obtaining high audit quality. We predict that incorporating this secondary goal may strengthen the innovation mindset effect by enhancing auditors’ cognitive flexibility. We experimentally demonstrate that the innovation mindset significantly improves auditors’ development of effective fraud procedures. Moreover, this effect is amplified when auditors generate client insights, as this intervening goal boosts creativity and cognitive flexibility, further enhancing auditors’ decision-making quality.
Authors
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.