Joseph Brazel

Professor

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.

Professional skepticism and audit committee support

This literature review explores how audit committee involvement can enhance auditors’ application of professional skepticism which is a critical factor for audit quality. It synthesizes research on auditor traits, knowledge, and incentives, highlighting barriers such as time pressure, budget constraints, and outcome bias that discourage skepticism.

The review also examines how audit committees can support auditors beyond oversight, including through direct communication and fostering a supportive culture, to reduce these barriers. Findings suggest that audit committee support, when effectively conveyed, may strengthen skepticism and improve audit quality.

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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.

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How do audit committees support audit engagement teams and encourage professional skepticism? A survey and experimental evidence

KEY TAKE-AWAYS The team explores how audit committees (ACs) support audit engagement teams and whether AC support can improve auditors’ professional skepticism. First they surveyed audit practitioners and found out that AC support is multidimensional, varies between engagements, and often is not communicated to the entire engagement team. Then it was experimentally investigated whether the explicit communication of AC support to the entire engagement team (by the partner vs. the AC chair) impacts the skepticism of auditors. While skeptical judgments are consistently high, auditors vary in their skeptical actions. When management attitudes towards the engagement team are poor, AC support communicated by the audit partner increases skeptical actions. Direct communication of support by the AC chair does not increase skepticism relative to when the partner conveys AC support. The findings of the team highlight the importance of AC support for audit teams, and the lack of AC support (or communication thereof) that exists on many audit engagements.

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Involvement in the Development of Data Analytics and Auditors’ Application of Professional Skepticism

Audit firms around the globe have invested heavily in a variety of audit technologies. Of these technological developments, audit data analytics (ADA) are receiving increased attention because they enable auditors to incorporate more diverse data and visualizations into their testing (i.e., graphical representations such as charts, scatter diagrams, trend lines, or maps). The American Institute of Certified Public Accountants (AICPA) defines ADA as “the science and art of discovering and analyzing patterns, identifying anomalies, and extracting other useful information in data underlying or related to the subject matter of an audit through analysis, modeling, and visualization for the purpose of planning or performing the audit”. The current study focuses on ADA visualizations, which can aid auditors when scrutinizing audit evidence and ultimately improve audit quality.

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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.

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Inheriting vs. Developing Data Analytic Tests and Auditors’ Professional Skepticism

As the use of audit data analytic (ADA) tests matures and becomes increasingly common in practice, auditors will transition to a situation where they typically inherit ADA tests developed by others (e.g., other audit team members or a centralized data analytics team). Despite the potential benefits of ADA, using ADA tests inherited from others, rather than developed by auditors themselves, could hinder auditors’ application of professional skepticism due to their lack of psychological ownership of the ADA tests. In an experiment where an ADA test identifies a fraud red flag, we find that auditors who inherited the ADA test are less likely to exercise professional skepticism compared to those who were personally involved in the development of the ADA test. We then provide evidence that informing auditors who inherited the ADA test about the test development activities (e.g., a brief ADA memorandum documenting the ADA’s development) boosts their skepticism levels.

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An Unintended Consequence of Full Population Testing on Auditors’ Professional Skepticism

The emergence of data analytics allows auditors to test entire populations of data drawn from clients’ information systems, rather than relying solely on sampling methods. While full population testing increases the sufficiency – or quantity – of evidence examined, it typically relies heavily on client-internal data. Therefore, auditors must remain skeptical when subsequent, more appropriate evidence from external sources contradicts a client’s financial reporting. In an experiment, we find that auditors using full population testing, compared to sample testing, are less likely to subsequently exercise skeptical actions when an external, industry growth trend reveals a fraud red flag. We do not find that this unintended consequence is exacerbated when full population testing results are visualized (versus tabulated), a typical format used for presenting data analytic tests in practice. Main Takeaways

Auditors using full population testing, compared to sample testing, are less likely to exercise skeptical actions when subsequently confronted with a fraud red flag revealed by an external industry growth trend.
Auditors using full population testing, compared to sample testing, overestimate their evaluation of the appropriateness of client-internal evidence. Presenting the testing results in a visualized compared to tabulated form does not exacerbate the negative effect of full population testing on auditors’ skeptical actions.

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An Unintended Consequence of Full Population Testing on Auditors’ Professional Skepticism

KEY TAKE-AWAYS The emergence of data analytics allows auditors to test entire populations of data, rather than relying solely on sampling methods. While full population testing increases the sufficiency, or quantity, of evidence examined, it does not necessarily eliminate its lack of appropriateness, or quality. In particular, full population testing typically relies on client-internal data, which are vulnerable to management manipulation, potentially reducing their appropriateness. Therefore, auditors must remain skeptical when subsequent, more appropriate evidence from external sources contradicts a client’s financial reporting. We examine whether auditors employing full population testing mistakenly substitute their assessment of evidence sufficiency for their evaluation of evidence appropriateness, leading them to view client-internal evidence as more appropriate than auditors using sample testing. Consequently, auditors using full population testing may be less likely to act skeptically when subsequent, more appropriate external evidence reveals a fraud red flag. In an experiment, we find that auditors using full population testing, compared to sample testing, are less likely to exercise skeptical actions when a subsequent external industry growth trend reveals a fraud red flag. We also posit that this unintended consequence is exacerbated when full population testing results are visualized (versus tabulated). However, our findings do not support this prediction.

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Can Prior Consultations with Specialists Backfire on Auditors?

As advanced audit data analytics (ADA), including artificial intelligence, become increasingly sophisticated, auditor consultations with in-house ADA specialists are likely to become commonplace. We examine whether auditors’ prior ADA consultation experience affects their superiors’ reliance on the auditors’ ADA work performed independently of specialists. On one hand, learning through prior specialist consultation may enhance auditors’ technological proficiency, increasing superiors’ reliance on their ADA testing. On the other hand, a history of consultation may signal dependence on specialists. This signal may conflict with superiors’ expectations that auditors can perform ADA tasks independently and trigger a backlash effect that ultimately undermines reliance. In an experiment, we find that when an audit senior has prior experience consulting with ADA specialists, audit managers evaluate the senior as more competent, yet rely less on the senior’s independent ADA work. This pattern is consistent with a backlash effect. We observe that this backlash effect occurs even when the subordinate’s ADA skills are low. This unexpected result is concerning, as backlash may discourage consultation even among auditors with lower ADA skills who need it most for learning and skill development. Our findings highlight the importance of managing interpersonal dynamics within engagement teams when incorporating ADA into audits.

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Can Prior Consultations with Specialists Backfire on Auditors?

As advanced audit data analytics (ADA), including artificial intelligence, become increasingly sophisticated, auditor consultations with in-house ADA specialists are likely to become commonplace. We examine whether auditors’ prior ADA consultation experience affects their superiors’ reliance on their ADA work performed independently of specialists. On the one hand, learning from ADA specialists through prior consultation may enhance auditors’ technological proficiency, increasing their superiors’ reliance on their ADA testing. On the other hand, a known history of consultation may signal dependence on specialists. This signal may conflict with superiors’ expectations that auditors can perform ADA tasks independently, triggering a backlash effect that ultimately undermines reliance. In an experiment, we find that when an audit senior has prior experience consulting with ADA specialists, audit managers evaluate the senior as more competent, yet rely less on the senior’s independent ADA work. This pattern is consistent with a backlash effect. Prior consultation experience leads to lower superior reliance even when the subordinate’s ADA skills are low. This unexpected result is concerning, as backlash may discourage consultation even among auditors who need it most for learning and skill development (i.e., those with lower ADA skills). Our findings highlight the importance of managing the interpersonal dynamics of engagement teams when incorporating ADA into audits.

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Can Prior Consultation with Specialists Backfire on Auditors?

Auditors often seek both formal and informal advice from a variety of sources, including specialists (e.g., IT, valuation, tax, and/or forensic experts), national offices, and engagement team members. This literature note reviews six academic studies on auditors’ use of advice and its impact on their professional judgment and audit quality. Specialists provide critical expertise, yet prior research finds that auditors often limit expert involvement due to concerns about budgets, deadlines, and client relationships. Furthermore, misaligned perceptions and communication gaps between auditors and specialists reduce effective knowledge sharing and integration of expertise. The need to balance between professionalism and client service further adds to the complexity of the issue. The quality of auditor-specialist relationships and the strength of shared team identity can influence auditors’ reliance on specialist advice. Positive relationships facilitate integration and mutual understanding, while strained relationships can hinder audit effectiveness. However, a strong identity or social bond may create trust heuristics (i.e., auditors overly rely on the advice regardless of its quality). Excessive dependence on seeking explicit knowledge – knowledge that can be accessed more efficiently elsewhere – from colleagues can harm auditor reputation and performance.

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What Do We Know About Auditors’ Fraud Risk Assessments and Responses?

This literature note provides insights into how auditors assess and respond to fraud risks. Overall, the evidence shows that fraud audit effectiveness depends not only on standards and technical guidance, but also on judgment structures, cognitive framing, team dynamics, and tone at the top. First, auditors often recognize heightened fraud risk but can fail to translate that recognition into targeted, effective audit responses. Instead, they frequently rely on increases in sample sizes rather than designing substantive procedures focused specifically on the fraud area. Encouragingly, identifying more fraud-focused risk factors may enable auditors to more effectively modify standard audit programs in response to fraud risks. Second, how fraud risk assessment is structured and framed significantly influences auditor judgments. Expanding the traditional fraud triangle to incorporate management capability leads to higher fraud risk assessments. Presenting fraud information in frequency formats rather than probabilities improves judgments when fraud base rates are low. Compared to using a holistic fraud assessment approach, decomposing the likelihood and magnitude assessments makes the low likelihood of fraud more salient and leads to lower fraud risk assessments. These findings suggest that judgment aids with respect to fraud must be carefully designed and evaluated. Third, audit team dynamics and leadership emphasis on professional skepticism play a critical role. Audit teams’ high-quality fraud brainstorming strengthens the relations between risk factors, risk assessments, and audit responses. Moreover, partner emphasis on professional skepticism improves both the effectiveness and efficiency of auditors’ fraud judgments. Collectively, the literature highlights that improving fraud risk assessments and responses requires a multifaceted effort. Audit firms should focus on strengthening auditor fraud cue recognition, promoting targeted responses, refining fraud risk assessment aids, improving brainstorming practices, and reinforcing a tone at the top that prioritizes professional skepticism and audit effectiveness.

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