Dr. Justin Leiby

Professor

Dr. Justin Leiby. He is an professor of accountancy at the University of Illinois. His research interests have been in the area of auditing, focusing on the social aspects of auditing. You can think of social bonds, social status and empathy. Researcher & educator in risk management & analytics. Auditing, risk, inequality, drug policy.

Where does the time go? Auditors commercial effort, professional effort, and audit quality
This study tests the taken-for-granted assumption that auditors’ commercial motivation threatens audit quality using internal time reporting data from two Big Four firms in the Netherlands. The research team examined whether auditors’ commercial effort is associated with their compensation, total effort on their audit engagements, and audit engagement quality. The researchers find some evidence of a positive relation between commercial effort and compensation. They find no evidence that auditors’ commercial effort is associated with total audit effort in their portfolio and, most importantly, they find no evidence of a negative relation between auditors’ commercial effort and audit quality. This challenges widely held beliefs that commercial effort is necessarily problematic for auditing. Further, the researchers find that auditors’ commercial effort is positively related to their reliance on quality control—proxied as technical consultations—and that there is a positive indirect effect of commercial effort on audit quality via consultations. That is, they identify conditions in which auditors’ commercial effort increases audit quality, suggesting that further restrictions on commercial effort are likely unnecessary.
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The Effects of Expert Status on the Audit of Complex Estimates
This practice note explores whether auditors confuse a specialist’s status with actual work quality when auditing complex estimates. Professional standards require auditors to assess specialists based on experience and reputation, but the study finds that auditors often attribute high status to irrelevant factors such as social connections, confidence, and any certification, regardless of relevance. This can lead to overreliance on specialists and increased audit risk.
Preliminary survey results show that status strongly influences auditors’ perceptions, even when substantive evidence is weak. The authors recommend focusing on evaluating the specialist’s work rather than background, and suggest centralizing specialist assignments within firms to reduce bias.
Future experiments aim to test how status interacts with justification strength and client alignment in shaping auditor judgments.
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The Effects of Expert Status on the Audit of Complex Estimates
The study explores how expert status influences auditors’ evaluation of specialists involved in auditing complex estimates. Auditors often rely on specialists due to the technical nature of such estimates, but they struggle to assess the quality of specialist input. The research suggests that high-status specialists—those with prestigious affiliations or reputations—may receive more favorable evaluations, even when their work lacks strong justification. This can lead to audit risk if auditors substitute status for substance. Three key findings emerge:
  1. Auditors rate high-status specialists more positively, regardless of actual work quality.
  2. When specialists agree with clients, auditors are less critical if the specialist has high status.
  3. When specialists disagree with clients, high status lends credibility to the dissent, improving audit quality.
The study warns against overreliance on status cues and calls for more balanced evaluations based on the substance of expert input.   Literature Review
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Does status equal substance? The effects of specialist social status on auditor assessments of complex estimates
Accepted for publication in TAR: Auditing standards require that auditors’ reliance on a specialist is commensurate with the specialist’s competence. In assessing competence, auditors encounter cues diagnostic of the specialist’s social status but less so of competence. In an experiment, we manipulate specialist status and find that auditors mistake status for competence unless they are prompted to separate the constructs. This raises the possibility that auditors could over-rely on high-status specialists. However, auditors also assess high-status specialists as more influential and, when the specialist disagrees with the client, they rely more on high-status specialists because of this perceived influence. Thus, high-status specialists can increase auditors’ willingness to challenge the client by providing a strong ally. Additional analyses suggest that auditors are aware that they rely on the specialist’s influence rather than competence, indicating that auditors do not use the process that auditing standards envision to evaluate and rely on specialists.  
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How is auditor commercialism related to audit quality?
It is taken for granted that a fundamental conflict exists between auditors’ professional responsibilities and their commercial interests. While there is no direct evidence to support this widely held belief, it  nonetheless fuels extensive, costly regulatory and standard-setting activities. We propose to examine whether auditors’ commercial and professional motivations actually conflict. Moreover, we argue that quality control mechanisms in audit firms, e.g., performance evaluation and technical consultation  procedures, create conditions in which the two sets of motivations are likely mutually reinforcing. To test our research question, we will examine whether auditors’ commercial activity is related to indicators of audit quality such as individual performance evaluations and engagement quality reviews. We expect to find that firms reward auditors’ commercial activity. However, contrary to critics’ concerns, we also hypothesize that auditors’ commercial activity will be positively related to audit quality. For reasons discussed in this note, we argue that auditors who base their professional identity more on being successful at commercial endeavors will be more willing to access quality control mechanisms (e.g., ask for help from consultations). As far as we are aware, our examination will provide the first direct evidence on the  beneficial effects of commercial motivations for auditors.
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How is auditor commercialism related to audit quality?
It is taken for granted that a fundamental conflict exists between auditors’ professional responsibilities and their commercial interests. While there is no direct evidence to support this widely held belief, it  onetheless fuels extensive, costly regulatory and standard-setting activities. We propose to examine whether auditors’ commercial and professional motivations actually conflict. Moreover, we argue that  quality control mechanisms in audit firms—e.g., performance evaluation and technical consultation  procedures—create conditions in which the two sets of motivations are likely mutually reinforcing. To test our research question, we will examine whether auditors’ commercial activity is related to  indicators of audit quality such as individual performance evaluations and engagement quality reviews. We expect to find that firms reward auditors’ commercial activity. However, contrary to critics’ concerns, we also hypothesize that auditors’ commercial activity will be positively related to audit quality. For reasons discussed in this note, we argue that auditors who base their professional identity more on being successful at commercial endeavors will be more willing to access quality control mechanisms (e.g., ask for help from consultations). As far as we are aware, our examination will provide the first direct evidence on the beneficial effects of commercial motivations for auditors.
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4th FAR International Conference booklet
The fourth annual conference of the Foundation for Auditing Research (FAR) was held in June 2019. The theme of the conference was ‘Evidence-informed policy making for the future of the auditing profession’. Therefore, the central question during all the presentations of this conference was: how can evidence-based auditing sector policy making be implemented? We are happy to offer you this conference report, which summarizes the keynote speeches and the FAR project presentations of preliminary research findings.  
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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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