Research On Auditor Professional Skepticism

Auditing: A Journal of Practice & Theory
Vol. 32, Supplement 1

2013
pp. 4597
American Accounting Association

DOI: 10.2308/ajpt-50361
Research on Auditor Professional Skepticism:

Literature Synthesis and Opportunities for
Future Research
R. Kathy Hurtt, Helen Brown-Liburd,
Christine E. Earley, and Ganesh Krishnamoorthy
SUMMARY: Both researchers (e.g., Nelson 2009) and regulators (e.g., the PCAOB)
have emphasized the importance of exercising the appropriate level of professional
skepticism when conducting an audit. However, professional skepticism remains a hard
concept to define and measure. In addition, it is often difficult to determine if a lack of
skepticism is the primary cause of audit deficiencies and if so, what factors led to the lack
of skepticism. The purpose of this paper is threefold: (1) extend the work of Nelson
(2009) by synthesizing research related to auditors professional skepticism to identify
antecedents to both skeptical judgment and skeptical action, (2) identify areas where
research is lacking on a particular dimension and suggest avenues for future research,
and (3) discuss the implications of research findings for regulators and auditing
professionals. We adopt two foundational aspects of the framework introduced in the
seminal paper by Nelson (2009), which proposes that lack of skepticism can either be
the result of a failure in problem recognition (lack of skeptical judgment) or a failure to act
on a problem recognized (lack of skeptical action). We organize research studies into
four categories of antecedents: studies relating to auditor characteristics, evidence
characteristics, client characteristics, and environmental characteristics. We find that
R. Kathy Hurtt is an Associate Professor at Baylor University; Helen Brown-Liburd is an Assistant Professor
at Rutgers, The State University of New Jersey, Newark; Christine E. Earley is a Professor at Providence
College; and Ganesh Krishnamoorthy is a Professor at Northeastern University.
The authors appreciate the research assistance of Olivia Ayuso and Emily Fuller, and the helpful comments of Jeff
Cohen, Charles Davis, Christine Nolder, and two anonymous reviewers.
To facilitate the development of auditing and other professional standards and to inform regulators of insights from the
academic auditing literature, the Auditing Section of the American Accounting Association (AAA) decided to develop a
series of literature syntheses for the Public Company Accounting Oversight Board (PCAOB). This paper (article) is
authored by one of the research synthesis teams formed by the Auditing Section under this program. The views expressed
in this paper are those of the authors and do not reflect an official position of the AAA or the Auditing Section. In
addition, while discussions with the PCAOB staff helped us identify the issues that are most relevant to setting auditing
and other professional standards, the author team was not selected or managed by the PCAOB, and the resulting paper
expresses our views (the views of the authors), which may or may not correspond to views held by the PCAOB and its
staff.
Editors note: Accepted by Jeffrey R. Cohen.
Submitted: March 2012

Accepted: November 2012
Published Online: June 2013
45
Hurtt, Brown-Liburd, Earley, and Krishnamoorthy
46
while research studies provide insights into both the antecedents to skeptical judgments
and actions, the majority of research efforts to date have focused on the antecedents to
skeptical judgments and on auditor characteristics in particular. Research findings have
implications for practice, but in order to understand how skeptical judgment translates
into skeptical action, additional research on skeptical action will need to be conducted.
Keywords: professional skepticism; skepticism; auditor skepticism; auditor judgment;
skeptical behavior.
INTRODUCTION
rofessional skepticism, like independence, is essential to the auditing profession, but is often
difficult to define and measure. Various sources have defined professional skepticism as an
attitude that includes a questioning mind and a critical assessment of evidence (AICPA
2007), the ability to detect fraud (Choo and Tan 2000), the opposite of trust (Shaub 1996), a
conservatism bias in audit judgment (McMillan and White 1993), the equivalent of independence
(Kadous 2000), and presumptive doubt (Nelson 2009). In this synthesis, we accept and include
research literature that deals with professional skepticism regardless of its specific definitional
emphasis. When determining whether auditors have exercised a sufficient level of skepticism,
regulators and others who study the public accounting profession point to outcomes, such as audit
deficiencies and audit failures, as evidence that auditors professional skepticism is lacking (e.g.,
PCAOB 2008, 2011; CAQ 2010); however, often in these cases the reasons for the lack of
skepticism are unclear. In this synthesis of academic research on professional skepticism, we
provide insights regarding possible threats to professional skepticism and suggest how these threats
may be mitigated to improve audit quality. Our examination of extant literature discusses the root
causes identified by researchers in instances of inadequate professional skepticism. In addition, we
discuss promising avenues for future research in areas not addressed in the literature.
In a seminal paper, Nelson (2009) provides a comprehensive model (hereafter, the Nelson
Model) and literature review of professional skepticism in auditing. Although we consider the
Nelson Model in our review and synthesis of literature on professional skepticism, our paper makes
a distinct and incremental contribution to the literature in three ways. First, building upon the
Nelson Model, we group antecedents into four subcategories: auditor characteristics, evidence
characteristics, client characteristics, and environmental characteristics. Some of these antecedent
groupings overlap with the Nelson Model and others do not. Second, our synthesis and analysis of
the literature has the primary objective of aiding and stimulating future academic research on
professional skepticism. To that end, the paper provides a detailed summary and discussion of
specific and targeted research issues worthy of future research. Finally, we conclude with policy
implications for the PCAOB and for the accounting profession with respect to the effect of
professional skepticism on the conduct of the audit, including auditor decision-making judgments,
and negotiations with the client.
The remainder of the paper presents our synthesis and is organized as follows: the main areas
of interest and framework for the synthesis are presented in the next section. This is followed by an
analysis of the relevant literature for each section of the framework and our recommendations for
future research. We conclude by summarizing the results of literature and discussing the
implications of the research for regulators and auditing practitioners.
AREAS OF INTEREST AND FRAMEWORK FOR SYNTHESIS
The topic of professional skepticism is complex and spans numerous academic areas, including
accounting, organizational behavior, cognitive psychology, social psychology, marketing,
philosophy, management, human resources, and many others. In order to narrow this vast arena
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Research on Auditor Professional Skepticism
47
of potentially relevant literature, we limit our synthesis to articles published since 1999 in the
academic accounting literature that used the term professional skepticism.1 We also identified
unpublished working papers that are relevant to the issue.
We develop a framework based on two foundational components of the Nelson Model:
skeptical judgment and skeptical action. Skeptical judgment occurs when an auditor recognizes that
a potential issue may exist and that more work or effort is necessary. Skeptical action occurs when
an auditor changes his/her behavior based on the skeptical judgment. Both skeptical judgment and
skeptical action are essential to the audit, with skeptical judgment being a necessary condition for
skeptical action. For example, an auditor may have the necessary knowledge, experience, or traits to
recognize an issue and be able to formulate a skeptical judgment, but he/she may choose not to do
anything based on that judgment because of various pressures during the audit. On the other hand,
an auditor may be in an environment where he/she is encouraged to act skeptically (e.g., the firm
and auditing standards mandate acting with skepticism), but the auditor does not have the traits or
the knowledge to recognize a problem. In either case, an auditor may fail to exercise sufficient
professional skepticism. But if both elements exist, there is a higher likelihood that professionally
skeptical actions will occur. The Nelson Model is especially insightful when examining the factors
that impact professional skepticism (or lack thereof ) because it recognizes and allows for
interactions between individual characteristics such as knowledge, traits, and ability, and
environmental characteristics such as incentives, and combines them with the characteristics of
the audit evidence to arrive at skeptical judgments, actions, and outcomes.
Within our framework we examine both antecedents to and outcomes from judgments and
actions that reflect auditors professional skepticism. Our model expands Nelsons model by
replacing the antecedents of professional skepticism (i.e., traits, knowledge, ability, and incentives)
with broader categories including auditor, evidential, client, and external environmental
characteristics. For example, with respect to skeptical judgment, a number of research studies
(e.g., Hurtt 2010; Hurtt et al. 2012; Quadackers et al. 2011; Brewster 2012) have examined the
extent to which auditors predisposition allows them to adopt a questioning mind when
evaluating evidence (for instance, can they recognize when something appears to be off or does
not pass the smell test). In these studies, auditors predisposition would be an antecedent to
skeptical judgment. The outcome from skeptical judgment can be captured in a number of ways.
For example, research examines whether auditors are able to identify an anomaly in a pattern of
evidential cues that may or may not be an indicator of fraud (e.g., Hurtt et al. 2012; Popova 2012),
and other research examines whether auditors can perform complex tasks, such as solving difficult
analytical procedures problems (e.g., Plumlee et al. 2012).
Assuming auditors can apply an appropriate level of skeptical judgment, one must then
examine whether they will act on this judgment, that is, do they go the extra mile and conduct
additional tests to support or refute their initial judgments (i.e., engage in skeptical action). Several
studies have examined environmental features, such as audit firm rotation, that may increase
incentives for skeptical action (e.g., Wang & Tuttle 2009; Bowlin et al. 2012).2 We consider these
incentives to be antecedents to skeptical action. Examples of outcomes of skeptical action include
an increase in audit evidence gathered and auditors standing up to clients during auditor-client
negotiations.
1
SAS 99 (AICPA 1999), which emphasizes, describes, and provides examples of professional skepticism, was
issued in 1999; therefore, this date was chosen as our initial cutoff date. In instances where papers prior to 1999
provide additional insight into skeptical judgments and skeptical actions, we expand the synthesis to include these
papers as well.
2
Given that Church et al. (2011) have done a thorough review of the literature relating to audit firm rotation, we
will only include studies related to audit firm rotation that lend insights into the relationship between audit firm
rotation and professional skepticism.

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To understand the numerous antecedents to skeptical judgment and skeptical action examined
in prior studies, our framework organizes the literature into four subcategories as noted above:
auditor characteristics, evidential characteristics, client characteristics, and external environment
characteristics.3 These subcategories are based on our review of the literature and the related
features of the audit environment that have been shown to affect auditor judgment and actions. By
organizing the antecedents in this way, our model departs from the Nelson Model. We believe that
this organizing framework enables us to capture elements of professional skepticism that are not
present in Nelsons model, although his model provides more detail on other elements that we do
not cover in depth. Therefore, we expand upon the Nelson Model, while keeping overlap between
the two papers to a minimum. Table 1 provides a description of the differences between the two
models.
Figure 1 depicts the overall framework and the organization of the research presented in this
paper. Beginning in the next section, we synthesize and discuss literature that relates to the
antecedents to skeptical judgment (organized into subcategories), and provide avenues for future
research, especially in areas that have not been addressed by prior research. In the subsequent
section, we repeat the process with respect to antecedents to skeptical action. In addition, the
important relationships between observed judgment outcomes relating to skeptical judgment and
skeptical action by auditors are also discussed. Finally, in the conclusion of the paper, we provide a
summary of what we have learned from the literature that will be of relevance for regulators and
practicing auditors. Given that our main foci are to generate avenues for future academic research
and to provide implications for the profession, we do not discuss the details relating to the research
method and findings of each paper in detail in the sections below. Rather, for those interested in
more specifics of a given study, we provide this information in Appendix A, which provides
summaries of all of the literature synthesized in the paper.
ANTECEDENTS TO SKEPTICAL JUDGMENTS
The four antecedents in our framework (auditor characteristics, evidential characteristics, client
characteristics, and environmental influences) provide a way to organize and synthesize the factors
shown to influence auditor judgments from the accounting literature. First, auditor characteristics
play a prominent role in a large number of research studies on professional skepticism (e.g.,
Rosman 2011; Pinsker et al. 2009; Rose 2007; Payne and Ramsay 2005). Clearly each auditor
brings unique and varied combinations of individual characteristics (e.g., traits, experience,
training, motivation, moral reasoning, and affect) to each engagement. For example, research is
beginning to explore the impact of auditors affect or mood on decision making during an audit
(Chung et al. 2008; Cianci and Bierstaker 2009; Nolder 2012). Second, audit evidence (or lack
thereof ) is influential in making an audit judgment, and not all audit evidence should be weighted
equally. Third, there are characteristics of each client, such as their tendencies to ingratiate
themselves with the auditor (Robertson 2010), that influence auditor judgments. Finally, external
environmental characteristics such as regulations, standards, and the control environment
surrounding each engagement influence auditors professional skepticism. We have synthesized
the available research for each of the antecedents, and have suggested research and policy
implications. Appendix B provides a summary of the significant research takeaways, as well as
suggestions for future research and policy and practice implications.
3
Because the topic of professional skepticism is complex and covers a very broad range of issues, attempting to
place papers into categories or silos can be challenging. Recognizing this challenge, we make every effort to
ensure that our synthesis and analysis is as complete and comprehensive as possible. Accordingly, a paper, where
appropriate, may be discussed in more than one subcategory.

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TABLE 1
Comparison of Nelson Model of Professional Skepticism to Current Model
Our Model (Figure 1)
Skeptical Judgment
Auditor Characteristics
Individual differences (traits)
Experience and expertise

Training
Motivation
Moral reasoning
Affect
Evidential Characteristics
Confirming versus disconfirming
Sources (subjective versus objective)
Client Characteristics
Integrity of management
Complexity of client
Riskiness of client
Client preferences
Negotiation
Client industry and relationship with audit firm
External Environment Characteristics
Accountability to reviewers
Accountability to regulators
Infrequent and more frequent risk assessments

Skeptical Action
Moral courage
Independence
Knowledge
Auditing standards
Corporate governance
Risk characteristics
External Environment
Tenure with client/firm rotation
Legal liability
Incentives to skeptical action
International issues
Model in Nelson (2009)

Skeptical Judgment
Traits
Auditor experience and training (within the
Knowledge construct)
Auditor experience and training (within the
Knowledge construct)
Incentives
Indirectly covered under Traits
Traits
Evidential input
Not directly covered
Incentives
Not covered
Knowledge
Incentives and judgment process
Incentives
Incentives
Knowledge
Skeptical Action
Traits
Traits and incentives
Knowledge
Incentives
Incentives
Incentives
Incentives
We first examine the role of individual auditor characteristics as an antecedent to skeptical
judgment. On each engagement, the auditors opinion on a clients financial statements is a product
of the work performed by audit teams. Yet each auditor approaches the audit by individually
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FIGURE 1
A Model of Antecedents to and Outcomes of Skeptical Judgment and Skeptical Action
performing tests, evaluating evidence, and making judgments about the quantity and quality of
evidence provided to support an audit opinion. Background education and firm training, including
feedback from the review process, as well as audit programs and evaluations, are structured to
develop auditor skills necessary to effectively and efficiently acquire evidence to support the
judgments necessary for an audit opinion. Below we summarize the research identified in this area,
examining the impact of individual traits, experience and expertise, training, moral reasoning, and
affect on auditors judgments.
Individual Differences (Traits)
Several studies have focused on traits that skeptical auditors possess. We narrowly define traits
as individual characteristics that enable auditors to determine when evidence does not add up, or
the traits that allow auditors to exercise skeptical judgment. Many studies concerning the traits of
auditor skepticism use the skepticism scale developed by Hurtt (2010) (the Hurtt Professional
Skepticism Scale; hereafter, HPSS), which measures trait skepticism using a scale composed of six
characteristics: (1) questioning mind, (2) suspension of judgment, (3) search for knowledge, (4)
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interpersonal understanding, (5) autonomy, and (6) self-esteem. Other studies use scales designed
to measure trust and have equated a lower trust score with skepticism (e.g., Rose 2007; Quadackers
et al. 2011). Hurtt (2010, 150) describes skepticism as a multi-dimensional individual
characteristic. As an individual characteristic, professional skepticism can be both a trait (a
relatively stable, enduring aspect of an individual) and also a state (a temporary condition aroused
by situational variables).
Overall, research into individual differences has demonstrated that auditors with higher levels
of trait skepticism (as measured by the HPSS) or lower levels of trust (as measured by the Rotter
Interpersonal Trust [RIT] and Wrightsman Trust scales [Rotter 1967; Wrightsman 1964, 1974])
tend to exhibit more skeptical judgments. These judgments are measured by the identification of
more contradictions (Hurtt et al. 2012), generation of alternative explanations (Hurtt et al. 2012),
focus on fraud cues (Popova 2012), less reliance on managements explanations (Quadackers et al.
2011), a greater tendency to view managements behavior as unethical (Farag and Elias 2012), and
paying more attention to aggressive or intentionally unethical behavior (Rose 2007). Rosman
(2011) found that factors such as personality differences and motivation also can impact the level of
skepticism exhibited.
Researchers in this area have called for additional study into whether trait skepticism can be
influenced by training or experience. Some have indicated that audit firms should be screening for
skepticism (e.g., Farag and Elias 2012), while others have called for studies examining the impact
on a team when one team member possesses high trait skepticism compared to teams with multiple
members reflecting high levels of skepticism. Some have cautioned that it is possible that
individuals high in trait skepticism could consistently over-audit and thus reduce audit efficiency
(Hurtt et al. 2012). Future research may investigate if trait skepticism influences an individuals
career path. For example, do auditors with different levels of skepticism stay or advance in audit
firms at different rates? What happens when someone who is high in trait skepticism is supervised
by someone who is not, or someone with lower trait skepticism is supervised by someone with
higher skepticism? One challenge in investigating these issues is accessing confidential data from
audit firms when such data are required. Although behavioral studies are able to look at some of
these specific questions such as evaluations of more or less skeptical individuals, the issue of the
impact of trait skepticism on auditor career trajectory would benefit from confidential employment
data from audit firms.
Experience and Expertise
This line of research examines the role that experience plays in the level of skeptical judgments
displayed by auditors. In addition to the trait measures described above, experience allows auditors
to develop domain knowledge and knowledge of patterns that will enable them to determine when
evidence does not add up. As noted by Nelson (2009, 7), Professional skepticism is facilitated if
auditors experiences have given them the knowledge of the frequencies of errors and non-errors
and the patterns of evidence that suggest a heightened risk of misstatements. Experience has been
examined in terms of general audit experience (i.e., number of years as an auditor), industryspecific experience, experience in a certain role (e.g., reviewer), and experience with a certain task
(e.g., fraud detection).
Several researchers have suggested that audit quality is improved by a greater use of more
senior personnel who have a greater understanding of the clients business and industry (e.g.,
Peecher et al. 2007; Knechel et al. 2010), presumably because such individuals are better equipped
to make skeptical judgments. For example, Brewster (2012) demonstrates that auditors with a
deeper understanding of the clients business are more able to resist persuasion attempts by the
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client (i.e., they can remain skeptical of the clients claims even when they are presented in a
persuasive manner).
Industry expertise has been shown to better explain auditor performance as compared to task
experience, and auditors perform better when auditing accounts in their industry specialization
(Moroney 2007). Archival research examining the effects of industry expertise suggests that
industry expertise is positively correlated with audit quality (i.e., Romanus et al. 2008; Low 2004;
Taylor 2000) and earnings quality (i.e., Balsam et al. 2003; Krishnan 2003).4 For example, industry
expertise allows auditors to deter earnings management (Krishnan 2003), be more effective in
assessing inherent risks (Taylor 2000), and assess audit risk more accurately (Low 2004). These
studies imply that audit quality is improved, perhaps because auditors with more detailed industry
knowledge may be more skeptical. However, a limitation of archival research is that industry
expertise is unobservable, and as a result there is no way of knowing whether the effect is due to
individual auditor or firm-specific industry expertise. Chi and Chin (2011) attempt to address this
issue using Taiwanese companies, and find that the likelihood of issuing a modified audit report is
greater and discretionary accruals are lower when a specialist auditor is retained. However, their
study also uses archival data, thus judgments and decisions that demonstrate skeptical judgment and
actions cannot be directly examined.
There are several other studies that have found that task-specific experience enhances skeptical
judgment. Rose (2007) finds that fraud-specific experience is positively related to judgments of
intentional misstatements on the part of the client, while general experience is not significant.
Agoglia et al. (2009) find that experienced reviewers most accurately assess fraud risk, regardless of
workpaper documentation format.
In contrast to the studies above, not all research has found experience to be beneficial. Grenier
(2011) finds that non-industry specialist auditors exhibited skepticism, but industry specialists need
to be reminded to question their own judgment process in order to exhibit skepticism. Payne and
Ramsay (2005) find that audit seniors are less skeptical than staff auditors. This finding is primarily
driven by situations with a low planning-stage fraud risk assessment, suggesting that audit seniors
anchor on the low fraud risk assessment despite subsequent evidence to the contrary.
The results from Grenier (2011) and Payne and Ramsay (2005) as well as previous research by
Shaub and Lawrence (1999) find the same pattern of less skepticism evident in more experienced
auditors. Without longitudinal studies, for which the firms have been reluctant to grant access to
data, it is impossible to know whether audit experience conditions auditors toward being less
skeptical (as suggested by Mautz and Sharaf [1961, 31] and Loebbecke et al. [1989, 25] who note:
auditors must condition themselves so that performing audit after audit without encountering a
material irregularity does not make them so complacent that they fail to recognize one when it is
encountered). Perhaps more negative interpretations could be that more skeptical auditors may be
leaving the profession earlier than less skeptical auditors, or (as noted below) that with increased
experience, auditors become captured by the audit industry and fail to question assumptions or
client explanations.
We conclude that the impact of experience on skeptical judgment (or lack thereof ) is derived
from a number of factors, such as the level of knowledge of the clients business and industry, the
number of years one works as an auditor, task-specific experience, and experience with more
complex audit tasks. The finding that fraud-specific experience increases skepticism judgments
suggests that providing students and auditors with experiential learning in fraud detection may
increase skeptical judgments. It is clear that more research into the impact of specific types of
experience and specific types of tasks on professional skepticism is needed. For example,
4
See Gramling and Stone (2001) for a review of the accounting literature related to audit firm industry expertise.

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Trompeter and Wright (2010) report that analytical procedures are increasingly used to reduce the
amount of audit testing and that less experienced staff are conducting a greater portion of these
analytical procedures. The latter raises concerns about whether less experienced auditors have
sufficient knowledge and training to proficiently perform analytical procedures, and whether they
will be able to appropriately apply skeptical judgment in interpreting the results of such procedures.
Accounting firms have reorganized around industry lines (Berton 1995; Emerson 1993) and
have used industry specialization to differentiate themselves from their competitors (Francis et al.
1999; Hogan and Jeter 1999). Future research that examines the macro effects of industry expertise
is necessary to gain a better understanding of how firm- and office-level factors might influence
skeptical judgment and action by audit firm members. A possible downside to industry
specialization is a lack of objectivity and independence if a firm becomes beholden to the industry
(Gramling and Stone 2001). For example, if a firm is in a highly competitive market (i.e., largely
driven by a few companies), the firm may be under more pressure to retain clients, especially on a
regional or office level. Given that industry specialization yields higher audit fees (Casterella et al.
2004; Mayhew and Wilkins 2003; Craswell et al. 1995), financially there is more to lose, especially
on a local office level. Pressures from within the firm to maintain industry competitiveness could be
a factor that influences an auditor to be less skeptical despite his/her expertise. This may be
especially relevant if the firms industry expertise is based primarily on work with one major
company in the industry versus several smaller companies in the industry. In this situation
incentives to maintain a large client may dominate and negate auditor industry expertise resulting in
less skeptical judgments. Further, because most of the research examining industry expertise is
archival in nature, the direct effects of industry expertise are unobservable. Thus, more research
using experimental or qualitative approaches is necessary to gain an in-depth understanding of
whether and how industry expertise enhances skeptical judgment and action.
Training
The antecedents to skeptical judgment discussed so far relate to auditor characteristics that
cannot easily be changed, such as an individuals predisposition to skeptical judgment or the
amount of experience he/she gains over time. The question remains as to whether auditors can be
trained to make better skeptical judgments. Wedemeyer (2010) suggests that the apprenticeship
model of developing audit judgment, which relies heavily on the teaching of earlier experiences to
new apprentices, may be susceptible to problems, such as a lack of comparability between earlier
experiences and current experiences, or an inability to adjust risk assessments to changing
circumstances. The current practice of training auditors primarily through their on-the-job
experiences may be ineffective at improving skeptical judgment, or at a minimum it may be
important to ensure that training is heavily influenced by auditors who demonstrate skeptical
judgment and skeptical action.
Alternatively, other researchers believe that if auditors are trained to be aware of their thought
processes or the unconscious biases affecting their judgments, they may begin to engage in more
skeptical thinking. For example, Bazerman et al. (2002, 102) note, Whats needed is education that
helps auditors understand the unconscious errors they make and the reasons they make them. That
knowledge alone will not solve the problem, but once members of the auditing profession
understand the role of bias in their work, honest and visionary leaders in the profession can help
change the conduct of accounting to prevent the conflicts of interest that promote bias.
Consistent with this suggestion, Peecher et al. (2010) propose that auditors should be trained to
be skeptical of their own judgment processes and of the judgment processes exhibited by other
auditors on their engagement teams. They suggest that auditors should understand that despite
confidence in their own judgments, there are incentives, heuristics, and biases that negatively
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influence each persons judgment. Possible approaches to training auditors to be skeptical of their
own judgment processes include engaging in counter-explanation, considering multiple alternatives
in addition to managements preferred alternative, and auditors challenging the thinking of other
auditors (i.e., assuming the other has been duped and made a judgment error and asking where that
most likely occurred and why).
Grenier (2011) finds that when specialist auditors are told to be skeptical of evidence, they do
not alter their judgments (and therefore are less likely to find fraud), but when primed to be
skeptical of their own process for evaluating evidence (i.e., judgment skepticism), they are more
likely to generate fraud explanations than non-specialist auditors. Harding and Trotman (2011),
however, find nearly opposite results, albeit less definitively than Greniers, when they ask auditors
to either reflect on their judgment process (inward orientation) or question the representations of
management (outward orientation). Outward orientation seems to enhance skeptical judgment
more than inward orientation. The Harding and Trotman (2011) inward orientation has more of a
focus on justification than in Grenier (2011), and they did not use industry specialist auditors, which
may account for the different results between the two studies.
Rather than requiring auditors to focus on their decision process, other research has focused on
training auditors to think differently (that is, engage in different types of unconscious processing) as
a way to get them to make more skeptical judgments. For example, Plumlee et al. (2012) trained
auditors how to use divergent and convergent thinking.5 They find that participants who received
both divergent and convergent training were more likely to generate and ultimately choose the
correct explanation compared to those who received only divergent or no training. Trotman et al.
(2009), in an experimental investigation of brainstorming, instruct one group to use pre-mortem,
or backward thinking (e.g., It is now six months after the audit and something bad has happened.
Why?). They find that groups that engaged in the pre-mortem thinking generated more
misstatements and more quality fraud ideas, and the authors encourage use of pre-mortem thinking
as an effective de-biasing technique.
Finally, there are some studies that have focused on training auditors to process information in
the same manner as specialists. For example, Carpenter et al. (2011) find that students increase their
ability to appropriately assess fraud risk after completing a forensics course. The effects of the
forensics training persist even seven months after the completion of the course, and more
importantly, the judgments of students trained in forensic accounting were similar to those of a
panel of seven individuals with expertise in fraud, forensic accounting, or law enforcement. This
finding is similar to that of Pinsker et al. (2009), who found that students trained in law were able to
remain less biased. The authors note that law students are less prone than accounting students to be
biased toward an advocacy position. This finding is presumably due to law schools emphasis on
understanding both positive and negative precedents (i.e., law students are trained in advocating
their position as well as explaining why contrary positions are incorrect) (Pinsker et al. 2009, 94).
Presumably this skill of viewing situations from both sides results in less biased (and therefore more
skeptical) judgments. The implication of both studies is that training auditors to think more like
specialists (forensic accountants or lawyers), or training in examining and explaining why contrary
explanations are incorrect, may improve their skeptical judgments.
Overall, the research on training auditors to be more skeptical shows promise for improving
skeptical judgments. Consensus from these studies (e.g., Peecher et al. 2010; Grenier 2011) seems
to be that simply instructing auditors to be more skeptical of evidence is not as effective as getting
them to understand (and be skeptical of ) their own processing and where they might be prone to
5
Divergent thinking causes auditors to mentally generate explanations for evidence or circumstances they identify
as unusual, and convergent thinking requires them to assess the plausibility of the explanations generated.

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biases in their judgments. Alternatively, getting auditors to alter their thought processes (e.g., to
engage in more convergent and divergent thinking or more backward reasoning) and training them
to consider both sides of issues more explicitly, as law students are trained to do, can lead to more
skeptical judgments. Additional research can investigate these and other training interventions to
see if the effects are long lasting and will generalize to larger groups of auditors. Research should
also investigate how trait skepticism, experience, and task complexity interact with the training
interventions to either enhance or inhibit their effectiveness.
Motivation
The role of motivation and its relationship to skeptical judgment is complex, because it relates
to the larger issue of incentives, which are broadly defined by Nelson (2009) as encompassing more
than just economic motivations. For example, accountability to reviewers is a very powerful
incentive that may motivate one to act skeptically, or motivate one to forego skepticism in order to
gain the favor of a reviewer, depending on the reviewers mindset (see Rich et al. [1997] for an indepth discussion of these issues as well as Wilks [2002]). Other incentives include avoiding risks
associated with failed audits (reputation risk) as well as risk of litigation, and risk of PCAOB
inspection findings. The role of these risks as incentives for increased skepticism is covered in more
detail below. In addition, incentives have the ability to induce skeptical action as noted by Nelson
(2009), and we note the role of incentives in the section on skeptical action. In this section we deal
primarily with factors that directly motivate auditors toward more skeptical judgments, but
acknowledge these factors are only a small part of a larger set of incentives that drive auditors
judgments and actions.
There are a few studies examining the role of motivation as an antecedent to skeptical
judgments; however, Bazerman and Tenbrunsel (2011) suggest that when employees are not
making skeptical judgments, one should examine audit firm goals and reward incentives. They
observe, people see what they want to see and easily miss contradictory information when its in
their interest to remain ignoranta psychological phenomenon known as motivated blindness
(Bazerman and Tenbrunsel 2011, 61). They also note the link between skeptical judgment and
action and how that link relates to the reward structure in auditing by noting, Many managers are
guilty of rewarding results rather than high-quality decisions. An employee may make a poor
decision that turns out well and be rewarded for it or a good decision that turns out poorly and be
punished, and further laws often punish bad outcomes more aggressively than bad intentions
(Bazerman and Tenbrunsel 2011, 64). Together these observations suggest that auditors may not
feel extrinsically motivated to make skeptical judgments because incentive systems do not reward
them for the process of making skeptical judgments, but only reward them when the judgments
result in a beneficial outcome for the firm. It may be, as suggested by Peecher et al. (2010), that the
PCAOB, by only noting negative outcomes in its inspections, is reinforcing a belief that positive
outcomes are better than careful and well-executed processes.
The HPSS captures the level of individuals intrinsic motivation as one of its constructs,
indicating that a level of intrinsic motivation is a driver of skeptical judgments. Using HPSS scores
to measure skepticism, Rosman (2011) found a link between motivation and skepticism, noting that
highly motivated subjects were more skeptical regardless of personality type and external factors,
whereas less motivated subjects exhibited varying levels of skepticism depending on their
personality type and external factors (such as level of firm support for their decisions).
Overall, the limited research linking motivation to skeptical judgment suggests that the firms
philosophy and operating style is an important antecedent for creating incentives and motivating
auditors to become more skeptical. However, the personality traits that the individual auditor brings
to the firm are also very important determinants of whether he/she exhibits an appropriate level of
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skepticism. Because the research linking motivation (both extrinsic and intrinsic) to skeptical
judgment is so limited, future research should examine the role motivation plays in such judgments.
For example, does being more motivated to think skeptically necessarily result in better judgments?
Are the audit firms currently evaluating or rewarding skeptical inquiries, regardless of outcomes? Is
skepticism and questioning weighted as heavily in staff performance reviews as maintaining a
positive relationship with the client? What role do performance evaluations play in an auditors
willingness to pursue skeptical questioning? As noted above, the major challenge to examining
these issues is access to firm data regarding how performance evaluations are conducted and how
reward systems are designed and administered, but if such data were available, significant insights
into the relationship between motivation and skeptical judgment could result.
Moral Reasoning
Studying the impact of moral reasoning on skeptical judgment is complicated by the fact that
identifying factors that impact moral reasoning and measuring moral reasoning as a construct varies
between researchers and theoretical models. One often-cited model of ethical decision making is by
Rest (1986), who builds upon the work of Kohlberg (1976). Rest defines four components of
ethical decision making which include (1) recognition of the moral issue, (2) making the moral
judgment, (3) establishing moral intent, and (4) acting on moral concerns. As noted by Jones
(1991), most studies are concerned with either component (2) or (4) ( judgment or action), or the
interaction between these two components. Because Rests model was originally conceived to
explain the behavior of students, subsequent researchers (such as Jones 1991) have built on Rests
model to incorporate other factors that may affect moral judgment or action among adults in
professional settings, such as the intensity of the ethical situation (Jones 1991) or an individuals
innate sense of fairness (Cohen et al. 2007). We will discuss research that addresses component (2)
(the moral judgment or moral reasoning component) in this section of the paper, and those that
address components (3) and (4) in the section below on skeptical action.
There have been few studies directly linking moral reasoning, or moral behavior, to skeptical
judgments.6 One study that attempts to do this is Kerler and Killough (2009), who posit that the
decision to trust a client is a conscious one, shaped by moral behavior, and that trust (or lack
thereof ) has the potential to impact professional skepticism. However, they find no relationship
between moral reasoning and trust. This may indicate that trust is not a conscious process or may
not be shaped by moral behavior as the authors contend. In contrast, Farag and Elias (2012) find
that more skeptical auditors have a harsher view of earnings management, which the authors
consider to be a more ethical perception. Bobek et al. (2012) examine the impact of moral intensity
as defined by Jones (1991) on the judgment of audit and tax professionals in an audit versus a tax
setting, and find that auditors are more likely to recommend conceding to a contentious client in a
low moral intensity setting and more likely to recommend conceding in a tax setting versus audit
setting.7
Future research on the link between moral reasoning and skeptical judgment could expand
upon Rests (1986) basic model as others have done, to examine additional variables affecting
moral judgment, such as perceived fairness, moral intensity, and underlying values. For example,
does an auditors value system or moral reasoning ability affect his/her ability to evaluate evidence
6
Although there have been numerous studies linking moral reasoning to decisions in accounting and auditing
contexts (e.g., Jones 1991), many have focused on the impact on audit judgments in general rather than
professional skepticism and are therefore outside of the scope of this research synthesis.
7
Ethical decision making is issue contingent; that is, characteristics of the moral issue itself, collectively called
moral intensity, are important determinants of ethical decision making and behavior (Jones 1991, 371).

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by allowing him/her to understand the clients mindset in preparing evidence (i.e., the ability to
view the evidence through the clients eyes)? Is it possible that one who has the moral character of a
fraudster is more able to think like a fraudster? Or would someone with strong values and a high
level of moral reasoning ability be more likely to be concerned about managements intentions
toward misstatement and therefore approach the audit with more of a skeptical mindset?
Affect
Very few research studies to date have examined the direct link between affect and skepticism.8
Exceptions include examination of how affect generated by managers efforts at ingratiating
themselves with auditors impacts the auditors skeptical judgments (Robertson 2010), the impact of
mood on hypothesis generation and auditor ethical judgments (Cianci and Bierstaker 2009), and the
effect of different mood states (i.e., positive versus negative) on auditors inventory valuation
judgments (Chung et al. 2008). Given the lack of research related to affect and skepticism, this is an
area for possible future research. Affect is most likely to be studied as a moderating or mediating
variable rather than looking at how ones emotions impact the judgments themselves. A researcher
would examine how emotions impact ones attitude toward his/her client, which would then impact
judgments (this is the approach taken by Robertson [2010]). Other possible research topics related
to affect include looking at the relationship between anger toward the client and whether one looks
for problems that are not present (i.e., becomes overly skeptical), the relationship between being
positively inclined toward the client (in a friendly or romantic way) and an inability to notice
problems, and the relationship between feeling depressed about something unrelated to the client
and the ability to evaluate evidence in a thorough and careful way.
As reviewed above, the majority of research on professional skepticism has been in the area of
individual auditor characteristics as an antecedent to skeptical judgments. However, there are a few
papers that deal with the remaining three antecedents: evidential characteristics, client
characteristics, and firm characteristics. We address evidential characteristics next.
Audit standards discuss some of the types of evidence that auditors may obtain before forming
a judgment. Research examining the relationship between skeptical judgment and evidence is
limited; however, studies have been conducted that examine confirming versus disconfirming
evidence, evaluating the source of evidence, and objective versus subjective evidence.
Confirming versus Disconfirming Evidence
We identified several studies (Fukukawa and Mock 2011; Trompeter and Wright 2010) that
examined auditors tendency to focus on evidence that will confirm a clients explanation of an
account balance fluctuation, rather than looking for disconfirming evidence (resulting in a lack of
skeptical judgment). Findings indicate that although auditors do tend to confirm given assertions,
they are less likely to confirm when assertions are stated negatively rather than positively
(Fukukawa and Mock 2011). Further, they find that the risk assessment approach influences the
effects of the framing of assertions. In addition, auditors continue to rely a great deal on clients for
information to set expectations and evaluate explanations when performing certain audit
8
In her doctoral dissertation, Nolder (2012) suggests that this is an important and under-researched area as
auditors emotional reactions in high-risk settings can influence their level of skepticism. She notes, In general
the risk research provides strong evidence to suggest that an auditors affective response to risks significantly
contributes to variations in his/her skeptical judgments and actions (Nolder 2012, 11).

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procedures, such as analytical procedures (Trompeter and Wright 2010), which raises concerns
about whether auditors overrely on client representations, potentially resulting in a bias toward
confirming information (as opposed to considering both confirming and disconfirming information).
However, Trompeter and Wright (2010) report that auditors appear to be sensitive to the PCAOBs
concern regarding professional skepticism, and because they realize that the PCAOB expects them
to do more than merely confirm a clients explanations, auditors may be limiting the use of
analytical procedures during audit testing.
The concern regarding overreliance on a clients explanations is echoed by Knechel (2007),
who posits that over time and especially with the use of the business risk approach to audit in the
era leading up to the collapse of Enron, audits have increasingly involved testimonial evidence
gathered through discussion-interviews with the client. Hence, there is a risk that reasonable
sounding stories are accepted by auditors, despite the requirement for professional skepticism.
However, he also argues that the business audit risk approach has potential merit since it requires
auditors to understand a clients business risk and explicitly relate it to audit risk. He recommends
combining the concepts in the traditional audit approach with that in the business audit approach,
and suggests that such action could lead to more efficient and effective audits.
Since both the business audit approach and the traditional audit approach involve subjective
audit evidence and testimonial evidence, an issue for future research is whether auditors exercise
sufficient professional skepticism when evaluating subjective evidence, especially as it relates to
reasonable-sounding stories from a clients management. The impact of decision aids, quality
corporate governance, and industry expertise on an auditors ability to evaluate reasonablesounding stories should be examined. Experimental methods may be particularly well suited to
examining these issues. From a regulatory perspective, the PCAOB and other standard setters such
as the IAASB and AICPA have posited that in certain circumstances (such as in evaluating
estimates, including fair value), it may be desirable for the auditor to develop his/her own estimate
independent of the client (e.g., see AU-C 540 [AICPA 2011]), which would lessen the effect of
confirmatory strategies. Although preliminary findings from Griffith et al. (2012) indicate auditors
are not independently developing estimates, future research could examine whether independently
derived estimates do demonstrate more skepticism than those that use managements calculations as
a starting point.
Source of Evidence and Subjective versus Objective Evidence
Research suggests that less credible evidence should be weighted less by auditors (e.g.,
Kizirian et al. 2005; Krishnamoorthy et al. 1999) and audit standards, such as SAS 99 (AICPA
2002) requires auditors to adjust skepticism based on evidence obtained. This skeptical orientation
has been found by Kizirian et al. (2005) and Harding and Trotman (2011). When auditors believe
that client-provided evidence is untrustworthy, they seek external validation as opposed to pursuing
additional client-supplied evidence (Kizirian et al. 2005). In addition, Harding and Trotman (2011)
examined the impact of evidence source on skeptical judgment in a brainstorming session. The
results indicate that when client management assessed a low likelihood of fraud, the auditors
responded with more skeptical judgments than when the assessment came from the partner or no
assessment was provided.
The limited number of studies examining the impact of the source of evidence on skeptical
judgments, and the dearth of studies on the impact of subjective versus objective evidence on
skeptical judgments, indicate an area for future research. Are more skeptical auditors better able to
differentiate between evidential sources? Information from the PCAOB on whether auditors seem
able to effectively deal with evidence from multiple sources with various levels of credibility would
assist researchers in investigating this area.
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In the preceding sections we reviewed the literature regarding individual auditor characteristics
and evidential characteristics. There is limited research on client characteristics and the impact of
such characteristics on skeptical judgments. Following is a review of the literature on client
characteristics that deals primarily with management integrity, client complexity, client preferences,
the riskiness of the client, the impact of client industry, and relationship with the audit firm.
Integrity of Management
Several studies (e.g., Earley et al. 2010; Kerler and Killough 2009; Robertson 2010) have
examined the impact of auditors beliefs about management integrity (i.e., beliefs about
managements honesty) on skeptical judgments. This research is related to the concept of trust,
which has been the subject of previous studies (see Nelson [2009] for a review of trust studies).
Research reports mixed findings with some studies finding that auditors who view management as
being of high integrity may be fooled into overlooking fraud cues (Earley et al. 2010), while
others find that auditors who had a negative experience with a clients management subsequently
made higher fraud risk assessments, with no impact on fraud risk assessment for those who had a
positive experience (Kerler and Killough 2009). These mixed results may be due in part to the fact
that trait skepticism interacts with previous client experience, with auditors scoring low in the HPSS
being more sensitive to previous client experiences, yet less able to identify fraud cues (Popova
2012).
Robertson (2010) finds that auditors who faced ingratiating managers (i.e., those managers
who strategically attempt to induce positive affect in the auditor) did not objectively evaluate the
audit evidence and allowed the client to influence their judgments (i.e., they exhibited a lack of
professional skepticism). In addition, Robertson (2010) reports that student participants were less
likely to comply with client requests than professionals.
While these studies provide mixed directional results, together they indicate that the level of
perceived client integrity has an effect on auditors judgments. Future research should address the
relationship between client integrity and auditors skeptical judgment to determine if auditors are
able to remain skeptical of clients they believe to be honest. This issue is particularly relevant when
management is manipulating the auditor into believing that they are honest, as in the case of the
ingratiating managers in Robertson (2010).
Complexity of Client
Client complexity can interact with auditor expertise to cause auditors to become overwhelmed
with information and confused, which then leads to breakdowns in skeptical judgment. Brewster
(2012) used a complex client setting, and by manipulating his auditors understanding of the client,
demonstrated a sleeper effect. With a sleeper effect after a period of time had elapsed, auditors
with less understanding of the client remember the clients incorrect explanation and not the correct
explanation, despite the fact that the auditors had initially rejected the clients incorrect
explanation.9 Tucker et al. (2003) argue that because complexity of the client and uncertainty
are increased in situations where auditors have doubts about the companys ability to continue as a
going concern, auditors have difficulty maintaining independence and integrity in the face of
economic pressure by the client. Further, the going concern judgment is complicated by the selffulfilling prophecy (i.e., the auditors opinion hastens the companys end), and auditors express
fewer going concern opinions ( judgments) when the auditors report of a going concern issue is
self-fulfilling.
9
See Kumkale and Albarracin (2004) for a review of the literature on the sleeper effect.

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Recent cases of financial statement fraud have occurred at clients who had complex businesses
or complex accounting in specific financial statement areas. As businesses continue to become more
complex or engage in accounting for transactions for which auditors are not well trained (e.g.,
derivatives and securitized investment assets), the possibility of a decline in auditor skepticism
exhibited at these clients increases. Future research regarding client complexity could focus on
judgments related to complex business models or transactions, in order to determine the impact on
auditor skeptical judgment and if greater training in base disciplines to help understand these
complexities or some other intervention will alleviate a lack of skepticism.
Riskiness of Client
Numerous studies have made the link between audit risk and skepticism, and this literature
predates our 1999 timeframe. For example, Hackenbrack and Nelson (1996) found that when risk is
moderate, auditors accept an aggressive reporting choice, but when it is high they prefer a
conservative choice. Farmer et al. (1987) find that higher risk is negatively associated with auditors
likelihood of agreeing with a clients questionable financial reporting preference, consistent with
Brown-Liburd et al. (forthcoming), described in the Negotiation section below. Earley et al. (2012)
find that auditors act more skeptically in a high-risk context, but this is attributed to the higher
litigation risk and regulatory scrutiny in these contexts, rather than client-specific risk. Quadackers
et al. (2011) examined the effect of control environment strength (a proxy for client risk) on
skeptical judgments and decisions and found that the effect of skepticism was heightened in highrisk environments. Taken together, these studies consistently demonstrate that in a high-risk
context, auditors make more conservative judgments, and in the cases of Brown-Liburd et al.
(forthcoming), Earley et al. (2012), and Quadackers et al. (2011), more skeptical judgments as well.
Client Preferences
Several studies have examined the effect of client preferences on auditor judgments,
particularly with respect to motivated reasoning, which involves searching for and overweighting
evidence that supports desired conclusions, which in the context of these studies are those favored
by the client. These studies are discussed in detail in Nelson (2009). In addition, another related line
of research examines judgments for which management makes an initial judgment, which the
auditor must then evaluate. Findings indicate that in several settings, auditors are biased toward
managements preferences, particularly when management prefers an option that is most beneficial
to itself (McDaniel and Kinney 1995; Earley et al. 2008). The fact that auditors are biased toward
the option that is most favorable to management indicates a lack of professional skepticism. Earley
et al. (2012) found the opposite of this bias in the fair value setting, that is, auditors were skeptical
of managements preferred treatment. They attribute this in part to the increased regulatory scrutiny
of fair value judgments and increased liability risk post-financial crisis as opposed to scrutiny of
internal control judgments, which were much less likely to be the subject of inspection findings by
the PCAOB at the time of Earley et al. (2008).
Overall, there is evidence to support the notion that client preferences impact skeptical
judgments, but the effect appears to be context specific, with some research indicating a negative
impact on skepticism and some indicating a positive impact. Future research will need to determine
what contexts cause increases to or reductions in skeptical judgment.
Negotiation
There have been numerous studies related to auditor-client negotiations, particularly as they
relate to waiving or requiring proposed audit adjustments (Ng and Tan 2003; Brown and Johnstone
2009; Trotman et al. 2005; Gibbins et al. 2001; Sanchez et al. 2007). Because most of these studies
involve the outcome of negotiations, they are more related to skeptical action than skeptical
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judgment and are therefore covered under antecedents to skeptical action. However, there are a few
studies that examine the relationship between skeptical judgment and negotiations with clients, and
overall, the results regarding the relationship between skepticism and outcomes of auditor-client
negotiations are mixed. Brown-Liburd et al. (forthcoming) find that auditors are able to exhibit
skeptical judgments and to be conservative in their negotiations with clients, but Wolfe et al. (2009)
found that ability to exercise skeptical judgment was dependent on the persuasion tactic used by
management. Similarly, Hatfield et al. (2010) found that auditors ability to remain skeptical was
dependent on certain factors, such as the size of the difference between the auditors initial
judgment and the clients amount, and whether the auditor had conceded in past negotiations.
Future research should address the circumstances under which auditors skepticism is enhanced or
threatened in negotiations, as well as the effect of training on the ability of auditors to exhibit
skepticism in negotiations.
Client Industry and Relationship with Audit Firm (e.g., Former Partner Working at Client)
We could not identify studies that examined the impact of the clients industry or the impact of
audit firm alumni serving as senior members of management at the client on an auditors skeptical
judgment. Theoretically, each of these has been proposed as a possible source of influence on
auditors ability to use professional skepticism in making judgments. Future research that examines
these important areas is necessary.
As shown in Figure 1, the final group of antecedents to skeptical judgment is the influence of
the external environment. These influences include: the individual auditors interaction with his/her
firm through accountability to reviewers, the impact of accountability to regulators, and the impact
of infrequent or more difficult risk assessments. As noted above, these influences represent
powerful incentives that have the ability to motivate skeptical judgment in either a positive or
negative manner. Although conceptually this should be a rich research area, we found only a limited
number of recent papers dealing with these issues that were not covered in Nelson (2009).
Accountability to Reviewers
Accountability to reviewers acts as an incentive that can impact both skeptical judgment and
skeptical action on the part of the auditors being reviewed, and there are studies that examine both
judgment and action together. For example, Turner (2001) finds that the preference of the reviewer
influences both the type and amount of evidence that auditors select. Carpenter and Reimers (2012)
find that when accountable to a partner who emphasizes professional skepticism (i.e., a partner who
tells others to maintain an appropriate level of skepticism and complete audit procedures as
effectively as possible rather than focus on efficiency concerns), audit managers make higher fraud
risk assessments and respond to risks with appropriate audit procedures (that is, they engage in
skeptical action) when fraud is present compared to those audit managers accountable to a partner
who does not emphasize professional skepticism. Peecher et al. (2010) find that audit managers
with pressure to be less skeptical coach junior auditors toward a preferred, lenient conclusion,
and this act of coaching convinces the manager of the accuracy of the more lenient (less
skeptical) position. Collectively, the Carpenter and Reimers (2012) and the Peecher et al. (2010)
studies, together with the hierarchical nature of audit teams (Libby and Trotman 1993), highlight
the notion that in some instances the same individual (e.g., an audit manager) can be both a
reviewer and a reviewee and hence may either take the same or a different stance in these two roles
with respect to his/her emphasis on professional skepticism. Prior research (Rich et al. 1997) also
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informs us that the reviewee may engage in behaviors to persuade the reviewer about the quality of
work performed by the reviewee, and thus the review process may include effective ways in which
inconsistent evidence is considered in the audit process (Libby and Trotman 1993).
Overall, these studies indicate that reviewer preferences can have a significant influence on the
skeptical judgments (and actions) of auditors being reviewed. As reviewer skepticism increases and
is communicated to the auditors being reviewed, the reviewed auditors will exhibit increased
skepticism even when it is inefficient to do so. Unfortunately, as noted by Wedemeyer (2010), the
apprenticeship nature of public accounting also means that being trained by a reviewer inclined
toward less skepticism can perpetuate a client advocacy position within audit firms. Thus, the
review process can be one way to promote skepticism, but only as long as auditors at higher levels
in the firm exhibit a skeptical mindset themselves and communicate this to auditors whose work
they review. A natural extension of this line of research is to conduct studies on the impact of
cultural attitude toward skepticism at the firm and/or the local office level (i.e., study attitudes of
office managing partners), and examine its impact on the reviewerreviewee relationship and the
training and promotion of junior auditors.
Accountability to Regulators
Research related to accountability to regulators takes on two formsstudies that view
accountability as an incentive that drives auditors to more skeptical judgments (e.g., Earley et al.
[2012], who note that accountability to regulators may lead to auditors preferring more conservative
fair value judgments), and studies that examine how the desire to follow standards established by
regulators may impact auditors processing and therefore have an indirect effect on their skeptical
judgments (Piercey 2011; Hammersley et al. 2010). Piercey (2011) finds that the documentation
requirement outlined in Auditing Standard No. 3 (PCAOB 2004) unconsciously leads auditors to
defensively bolster their lenient judgments, which led to assessing lower audit risk levels when
documenting judgments in words, but not when doing quantitative judgments. However,
Hammersley et al. (2010) find that having specific documentation of fraud risks identified during
the planning stage increases auditors final fraud risk assessments and evidence requests.
Overall, the studies related to accountability to regulators indicate that when accountability acts
as an incentive, auditors do exhibit more skeptical judgments, but that specific requirements of the
auditing standards can cause auditors to engage in cognitive processing that may result in reduced
skepticism. The studies in this area are relatively new, and future research on the role of
accountability to regulators can add more insight into the benefits as well as unintended
consequences (such as those identified by Piercey 2011) of regulation as it relates to skeptical
judgment.
Infrequent and More Difficult Risk Assessments
One type of difficult risk assessment that auditors must make is assessing the likelihood of
fraud. The standards (i.e., AU 316 [AICPA 2007]) require that the engagement team conduct a
fraud brainstorming session in an attempt to aid auditors in developing an awareness of possible
fraud risk areas. Lynch et al. (2009) find that electronic brainstorming results in a heightened
awareness of fraud risks as compared to face-to-face brainstorming and that fraud risk assessments
are higher with electronic brainstorming. Although electronic brainstorming may hold significant
benefits in terms of both efficiency and effectiveness, further research into the adoption of this type
of brainstorming should be performed.
Other Potential Areas for Research
We identified three other areas related to external environmental characteristics that might have
an impact on an auditors professional skepticism: issues dealing with principles versus rules-based
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accounting standards, the auditors awareness of their responsibility to third parties (e.g.,
stockholders/stakeholders), and the potential issues arising from time pressure/being overworked.
Although there is prior research on some of these topics (e.g., McDaniel [1990] on time pressure),
and the impact of such research on professional skepticism has been covered in Nelson (2009),
more recent research that directly examines the impact of these environmental factors on
professional skepticism is warranted.10 For instance, anecdotally our students and former students
indicate that the time pressure to complete an audit and the amount of hours they work during busy
season contribute to a willingness to accept information as it is presented, without probing, simply
to get finished. However, accounting researchers have not directly examined the impact of time
pressure or exhaustion on professional skepticism. This is a very important and potentially fruitful
area for research.
In summary, there are numerous studies of the antecedents to auditors exercising professional
skepticism when making audit judgments. Overall findings indicate that there are individual
differences between auditors in terms of their ability to recognize when there is a problem with
evidence (i.e., when something does not add up). Nelson (2009) discusses the role that
unconscious cognitive processes, such as error frequency knowledge and pattern recognition, as
well as traits like problem-solving ability and ethics, play in skeptical judgment. Expanding on his
discussion, we find that research regarding auditor characteristics has further established the link
between individual traits of auditors and skeptical judgment (with auditors scoring higher on scales
such as the HPSS exhibiting more skeptical judgment); however, skepticism can be influenced by
other characteristics of the audit setting.
ANTECEDENTS TO SKEPTICAL ACTIONS
As discussed above, an auditor must recognize that a problem exists before he/she can take
appropriate skeptical actions (e.g., extending fieldwork, investigating differences, or requesting the
help of an expert). In the previous section we reviewed a number of studies on the antecedents to
making the appropriate skeptical judgment. In this section we address research that reveals what
auditors do after they identify the existence of a problem. We utilize the same four antecedents that
are identified in Figure 1: characteristics of the auditor, the evidence, the client, and the external
environment.
Moral Courage
Nelson (2009) discusses research relating to auditors moral reasoning as relating primarily to
the link between incentives and judgment. He reviews extant literature, explaining that in most of
this literature, auditors at higher stages of moral development are more sensitive to information
about client competence and integrity. However, he also notes that there has been some discussion
that higher levels of moral reasoning may actually lead to more departure from auditing standards
(Nelson 2009, 9). This apparent disconnect between moral reasoning and action cannot be directly
studied without considering intermediate steps that might be present between the two. Rest (1986)
attempted to address an intermediate step through component (3) of his model, establishing moral
intent. However, subsequent researchers in organization behavior refined the incorporation of
intermediate steps by proposing a more complex model of ethical actions in the workplace, and
introduced the idea of moral courage, which is instrumental in determining the course of actions an
10
For instance, Cohen et al. (2012) find that auditors make more conservative judgments under principles-based
standards than under rules-based standards. They do not directly examine professional skepticism under rulesversus principles-based accounting regimes; however, their results are consistent with greater professional
skepticism being exercised under principles-based standards.

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individual will take. For example, Serkerka and Bagozzi (2007) propose a model in which they
define the construct of moral courage and examine what drives individuals to exhibit moral courage
in the workplace. They posit that once moral reasoning has occurred, individuals engage in the
intermediate steps of a desire to act, self-regulation of the desire to act, and the decision to act
before actually performing an action (either ethical or unethical). According to their model, moral
courage is instrumental in driving these steps, in that it promotes the desire to act, and then shapes
self-regulation activities (such as reflecting on whether the action would be beneficial personally or
to the organization as a whole) and other considerations leading up to the decision to act. In
subsequent work, Serkerka et al. (2009) develop a scale to measure the construct of professional
moral courage (PMC). Hannah et al. (2011a) also further refine Rests model and expand it beyond
the intermediate steps of Serkerka and Bagozzi (2007). They view moral courage as just one facet
of a larger construct, which they refer to as moral conation, defined as the capacity to generate
responsibility and motivation to take moral action in the face of adversity and persevere through
challenges (Serkerka and Bagozzi 2007, 664). Applying this idea to the audit setting, we believe
that moral courage is influential in prompting auditors to take action on the judgments that they
make. However, in our review of the skepticism literature in auditing, we did not identify any
research on the link between moral reasoning and moral courage, or between moral courage and
skeptical action. This is not surprising, as Hannah et al. (2011a) note the lack of research in all fields
examining the link between moral courage and action, with the exception of recent work by Hannah
et al. (2011b), which examined moral courage in the military.11 The link between moral courage of
auditors and skeptical action presents an interesting area for additional research, as there are many
unanswered questions such as: Does higher-level moral reasoning automatically translate into
greater moral courage? Are auditors who exhibit moral courage more likely to act on their skeptical
judgments than those who do not? Are auditors who exhibit moral courage less influenced by client
or peer pressure when dealing with expanding investigations or taking an unpopular stance with a
client? Insights from the organizational behavior literature cited above could motivate additional
research questions on this topic.
Independence
Auditor independence is important to consider in the discussion of professional skepticism
because if an auditor lacks independence, specifically independence in fact, it is possible that the
auditor will not approach the audit with an appropriate level of objectivity and professional
skepticism. In recent years, research on independence has largely focused on financial incentives
(i.e., audit fees, consulting services) that potentially impair auditor independence. Very few studies
have examined the direct link between independence and skepticism; however, we identified two
articles that investigate this area.12 Perhaps validating the cooling off period that is now in effect
for hiring former auditors, Menon and Williams (2004) find that companies that employ a former
audit partner as an officer or director report larger accruals and are more likely to just meet earnings
forecasts. As discussed above, Tucker et al. (2003) examine the likelihood of an auditor issuing a
going concern judgment and suggest that the pressure not to create a self-fulfilling prophecy may
11
Hannah et al. (2011b) conducted a four-month field study and found that moral courage of soldiers was related to
the level of authentic leadership exhibited by their squad leaders (that is, the level of leadership as captured by an
instrument known as the Authentic Leadership Questionnaire). The higher the level of authentic leadership
exhibited by squad leaders, the greater the level of moral courage of the soldiers, which in turn was positively
related to a greater level of pro-social and ethical behavior exhibited by those soldiers.
12
There is another PCAOB synthesis project that focuses on auditor independence (see Church et al. 2011);
therefore, we only briefly review those papers that drew a direct link between auditor independence and
professional skepticism.

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impede the auditors willingness to take skeptical action. Overall, there are relatively few studies
that examine the direct link between auditor independence and skeptical action, and more research
is needed in this area.
Knowledge
Knowledge is a component of auditor expertise and is therefore usually associated with
skeptical judgment. However, there is one study that examines how knowledge relates directly to
skeptical action, mainly by examining how knowledge relates to the consideration of additional
evidence.
Griffith et al. (2012) interviewed auditors who admitted to overreliance on management
assertions by failing to test assumptions, failing to adequately consider internal controls, and failing
to fully understand some business models. This study also identified a failure to notice and
reconcile external evidence when it conflicts with management assumptions and to overrely on
outside specialists. These findings indicate that lack of knowledge and/or other aspects such as traits
and incentives directly leads to a failure to act skeptically and a failure to gather additional evidence
when it is warranted. This lack of action seems due to a failure to understand and evaluate instances
when more evidence is needed to support or refute managements claims.
The link between knowledge and action may provide a rich research area. Research in
psychology has consistently demonstrated that individuals overestimate their own knowledge and
are overconfident in the accuracy of their own judgments. Identifying what methods are effective
for overcoming individuals overconfidence, and understanding when an auditor needs to request
the assistance of an expert or to develop a deeper expertise before concluding in an area, should be
further investigated.
Audit Standards
Ng and Tan (2003) found that during negotiations with clients, auditors took a stronger
position (skeptical action) when there were authoritative standards that more explicitly supported
the auditors position but took a more conciliatory position in the face of less explicit standards.
Nelson et al. (2002) find that auditors were less likely to require that management adjust earnings
when management attempts were structured such that they complied with precise standards or were
unstructured so as to comply with imprecise accounting standards. However, future research could
examine how standards and clarity of standards enhances or impedes skeptical action by looking at
the level of ambiguity versus specificity in the standards or proposed wording of standards. This
area of research may be particularly relevant as the AICPA and IAASB issue standards relating to
the Clarity Project and/or the PCAOB continues to adopt standards of its own.
Corporate Governance
Auditors are required to discuss the quality of financial reporting alternatives with the audit
committee (AICPA 2000); and since the passage of Sarbanes-Oxley (U.S. House of Representatives
2002), the responsibilities of the audit committee have been expanded and have received increased
emphasis. Audit committees play an important role in overseeing the financial reporting process.
Interviews with auditors conducted after the implementation of the Sarbanes-Oxley Act indicate a
significant improvement in terms of audit committee expertise, authority, power, and diligence
(Cohen et al. 2010). Research demonstrates that when an auditor is in a confrontation with
management about a difficult issue, a strong audit committee enhances the relative bargaining
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power of the auditor by serving as an important ally (Brown-Liburd and Wright 2011; Cohen et al.
2010; Ng and Tan 2003). When auditors perceive the audit committee to be strong, auditors are
more resolute (i.e., they stick to their position, and propose larger adjustments [Brown-Liburd
and Wright 2011]). Additionally, when authoritative guidance is lacking, auditors perceive that a
negotiated outcome with management will result in the client recording an adjustment when the
audit committee is effective (Ng and Tan 2003). These studies suggest that an effective corporate
governance environment is an antecedent to skeptical action on the part of auditors.
Despite findings indicating the importance of the audit committee to the financial reporting
process, management is still the more dominant party in auditor selection and retention decisions
(Cohen et al. 2010). This finding raises important questions about the professional skepticism of
members of the board, and especially those serving on the audit committee, and the impact of such
skepticism (or lack thereof ) on audit judgments and decisions. There is scant research examining
the impact of professional skepticism of audit committee members on the effectiveness with which
they discharge their responsibilities with respect to monitoring the financial reporting process.
Accordingly, a number of issues related to audit committee members professional skepticism are
worthy of future research. For instance, future research could examine if audit committee members
appointed by a truly independent board are more skeptical in making judgments about the quality of
financial reporting than members appointed by a board that is independent only in form but not in
substance (i.e., one where the appointment process is highly influenced by management [Cohen et
al. 2008]). A related issue worthy of future research is whether audit committee members who share
the same social network with the CEO (e.g., graduated from the same school or belong to the same
country club) are more likely to exhibit lower levels of professional skepticism than those who
share the same professional network (e.g., the audit committee member and the CEO have worked
together at a different organization in the past), or those who have no affiliation of any kind with the
CEO. Another issue worthy of future research is whether audit committee members who exhibit
greater professional skepticism are more likely to side with the auditor in the event of significant
auditor-management disputes with respect to the financial reporting process.
There are also a number of areas of fruitful research that emerge when examining the potential
interactive effects of auditor and audit committee members professional skepticism. For instance,
are auditors risk assessments and program planning judgments likely to be influenced by the level
of professional skepticism of audit committee members, given that audit planning decisions are
often influenced by interactions between auditor and audit committee (Cohen et al. 2011)?
Relatedly, an important issue worthy of future research is to examine whether more skeptical audit
committees are more likely to engage the services of auditors who exhibit higher levels of
Risk Characteristics
Few studies look specifically at the impact of a clients risk characteristics on auditors
skeptical actions. Quadackers et al. (2011) find that higher internal control risk is significantly
associated with a higher number of budgeted audit hours, and Hurtt et al. (2012) find that auditors
responded to a riskier client by increasing the number of workpapers they examined. Thus we have
some evidence that auditors recognize and respond to client risk factors. However, as reviewed by
Nelson (2009), numerous studies document that even when auditors perceive increased risk factors,
they remain reluctant to implement changes to an audit program. What drives an appropriate
response to client risk characteristics, both in the planning stage and in the fieldwork phase of an
audit? Accounting academics and accounting educators should investigate both how to teach
appropriate responses to increased risk and the factors that help auditors move from recognizing
increased risks to taking appropriate action on the risk assessment.
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Are auditors likely to exhibit lower levels of professional skepticism with respect to disclosed
numbers (e.g., disclosed in notes to financial statements) than equivalent numbers that are
recognized on financial statements? Prior research suggests that auditors differentially respond to
correction of misstatements based on whether such misstatements are disclosed or recognized, even
when the amounts are the same (Libby et al. 2006). Libby et al. (2006) indicate that auditors require
greater correction of misstatements in recognized amounts as compared with disclosed amounts
because auditors believe that recognized amounts are more material than disclosed amounts and
hence engender higher levels of risk exposure. Future research could investigate whether auditors
exercise of professional skepticism varies depending upon whether an item is disclosed or
recognized.
The PCAOB has clearly been attempting to address the concept of auditors response to risk
through its inspection reports. Perhaps, as called for by Peecher et al. (2010), having the PCAOB
provide examples of audits where increased risks were identified and appropriately addressed might
increase the ability of both audit firms and researchers to work in this area.
External Environment Influences
Firm Rotation (e.g., Independence, Tenure on Client)
The PCAOB issued Release No. 2010-006 (PCAOB 2010) in response to its concern that
auditors have at times exhibited a lack of an appropriate level of professional skepticism. The
PCAOB contends that audit firm rotation is potentially a way to enhance auditor independence,
objectivity, and professional skepticism.13 The discussion about audit firm rotation is not new; in
fact, as noted in the PCAOB (2011) concept release, the subject was first discussed as part of the
Metcalf report in 1977 and then in the Cohen Commission report in 1978. In 1994 the Securities
and Exchange Commission once again considered audit firm rotation in its report on auditor
independence, and it was brought up again in the deliberations leading up to the enactment of SOX
in 2002. However, despite the debate over the benefits of audit firm rotation, there is limited
research in this area, and most of these studies examine audit tenure, not specifically audit firm
rotation. The exceptions to studies based on the audit tenure approach are studies that use
experimental markets methodology with student subjects such as Dopuch et al. (2001), Wang and
Tuttle (2009), and Bowlin et al. (2012). Dopuch et al. (2001) find that the imposition of audit firm
rotation decreased auditors willingness to bias their reports in favor of management. Wang and
Tuttle (2009), in the context of an auditor-client negotiation, find that auditor-participants are less
cooperative and outcomes are more in line with auditor preferences when rotation is mandated.
However, Bowlin et al. (2012) suggests the opposite: that auditor rotation decreases professional
skepticism. They attribute the decrease in professional skepticism to participants having less
experience with a new client, and as a result they underestimate their own judgment regarding the
honesty or dishonesty of the client. They find that under mandatory rotation there is less skeptical
audit judgment and lower levels of audit effort.
Another study by Kim and Yi (2009) does not deal directly with audit firm rotation as proposed
by the PCAOB, but may offer some insights. This study uses discretionary accruals to proxy for
professional skepticism. Korea provided a unique environment in which to study government
intervention in the choice of audit firm, because in Korea (at the time this study was conducted) the
government appoints auditors for certain firms that are considered high risk, while auditors are hired
in a free market for the rest of publicly traded firms. Thus, there is the opportunity to see the impact
of government appointment directly compared to non-appointment. Kim and Yi (2009) find that
13
Since Church et al. (2011) examine auditor rotation in the context of auditor independence, our review of articles
on auditor rotation is limited to those that are most directly related to the issues addressed in this paper.

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firms with government-appointed auditors are less likely to report income-increasing accruals,
which they attribute to appointed auditors exercising heightened professional skepticism. However,
one needs to exercise caution with respect to the implications of the study for audit firm rotation
because firms with government-appointed auditors in the Korean context are, by definition, high
risk with more government scrutiny, and hence auditors may respond by exercising a higher degree
of professional skepticism for such clients.
The aforementioned studies may provide some insight into the impact of audit firm rotation on
professional skepticism. However, the limited number of studies in this area and the issue of
omitted or correlated variables make it difficult to draw any definitive conclusions. Clearly, the
effects of audit firm rotation on independence, objectivity, and professional skepticism warrant
additional research.
Legal Liability
The legal costs to auditors resulting from audit failure would suggest that auditors should
demand more conservative financial reporting and as such would take more skeptical action when
confronted with evidence suggesting potential misstatements. However, the research on the impact
of potential legal liability as an antecedent to acting on professional skepticism is extremely limited.
Kim et al. (2003) find that Big 6 auditors are more effective than non-Big 6 auditors in deterring/
monitoring opportunistic earnings management only when managers have incentives to prefer
income-increasing accrual choices. Additionally, they find Big 6 auditors are less effective than
non-Big 6 auditors when both managers and auditors have incentives to prefer income-decreasing
accrual choices and thus no conflict of reporting incentives exists between the two parties. The
authors argue that Big 6 auditors have incentives to be more conservative and exercise more
professional skepticism than non-Big 6 auditors in determining reported earnings due to litigation,
and that Big 6 auditors face higher reputational costs associated with audit failure.
Audit firms argue that the legal liability faced by the profession is a distraction and a barrier to
recruitment and retention of high-quality employees. After passage of SOX, audit firms are now
operating under a new regulatory environment with heightened scrutiny by the PCAOB and tougher
enforcement. Increased regulatory scrutiny would potentially lead to enhanced audit quality.
However, to our knowledge, researchers have not investigated the influence that the threat of legal
liability or PCAOB action has on auditors skeptical actions. Do auditors act more skeptically when
they are more aware of potential legal ramifications? Does legal action against the firm influence
behaviors, or might the social distance (or other barriers) between the action and the individual
mediate the influence of potential legal liability on individual auditor behavior?
Incentives to Skeptical Action
As noted above, incentives play a very important role in motivating skeptical action, and most
of the research involving skeptical action in auditing has studied the role of incentives as noted in
Nelson (2009). It seems logical to assume that incentives encourage individual auditors and audit
firms to take more skeptical actions, but firms may be structured such that the incentives encourage
less skepticism. Several studies (Shaub and Lawrence 1999; Payne and Ramsay 2005; Grenier
2011) suggest that skepticism decreases as one moves up within the audit firm hierarchy or becomes
more experienced. Future research could examine whether the decrease in skepticism currently
noted in the progression from student to senior persists at the manager or partner levels, given that
as a person advances in the firm, the risks/reward structure changes. Incentives to act skeptically
may increase or decrease depending on the individuals level in the firm. For example, partners
have greater risk given their ownership interest and reputational concerns. Therefore, they may
want to engage in more skeptical actions. Consistent with this expectation, Knechel et al. (2012)
find that audit partners compensation in Sweden is negatively impacted when they fail to issue a
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going concern opinion for clients that go bankrupt. On the other hand, Knechel et al. (2012) also
find that partners compensation is positively (negatively) affected by gaining (losing) clients, thus
providing the incentive to retain clients or acquire risky clients. However, research shows that when
engagement risk is high, senior-level audit practitioners are less likely to acquiesce to client
pressure (Brown and Johnstone 2009). Alternatively, partners are also under greater client retention
pressures, and these pressures may cause them to act less skeptically.
We were unable to identify any research that examined the direct influence of reward
incentives on skeptical actions. Research in this area could investigate the nature and timing of
incentives, positive (rewards) versus negative (punishment) incentives, and individual versus teamor group-level incentives. There is a rich literature in the human resources and organizational
behavior disciplines that may inform and motivate research in this area.
International Issues
While almost all prior research covered in this study has been conducted in the context of U.S.
GAAP and auditing standards, recently there has been a vociferous debate about the ramifications
of the SEC allowing or requiring U.S. companies to adopt the International Financial Reporting
Standards (IFRS) for financial reporting. In addition, with consistent calls for U.S. integration into
the global financial reporting community by the G-20 nations and others, the AICPA has been
working with the International Auditing and Assurance Standards Board (IAASB) to develop joint
auditing standards as part of its Clarity Project. However, it is unclear whether or to what degree the
PCAOB standards will also be reflective of IAASB standards.
The PCAOB Standing Advisory Group (SAG) has expressed concern that IFRS may lead to
disagreements between auditors and management about whether a company used proper judgment
because of the professional judgment inherent in IFRS. Marden and Brackney (2009) suggest that
the complex task of trying to assess managements judgments on IFRS compliance and the spirit
of the law, rather than assessing compliance based on the established U.S. GAAP set of
benchmark rules, may prove challenging to auditors. Assertions regarding valuation may be the
most difficult area for auditors to examine. Given Marden and Brackneys (2009) work as well as
research findings indicating that the audit of complex estimates (a subjective area) often results in
auditors overrelying on management assertions (Griffith et al. 2012), it is important to understand
the issues expressed by regulators in countries where IFRS has been adopted.
In response to the global financial crisis of 20082009, many international regulatory regimes
raised concerns about auditor judgment. For example, the IAASB (2012) issued a document entitled
Professional Skepticism in the Audit of Financial Statements. The IAASB emphasizes the
fundamental role of professional skepticism in a financial statement audit and the close
interrelationship between professional skepticism and professional judgment, both of which are
key inputs to audit quality.
The European Commission (EC), in response to the financial crisis, issued a green paper
seeking comments on the role of the auditor and audit quality (EC 2010) and subsequently issued a
proposal reflecting the comments they received. The proposal notes that audit firm rotation, joint
audits, prohibiting non-audit services, and stricter rules regarding auditor appointments were
identified as a means of assuring independence and enhancing professional skepticism.
Additionally, the proposal reinforces the importance of auditors maintaining professional
skepticism by encouraging auditors to actively challenge management and to recognize the
possibility that a material misstatement could exist. One of the responses to the original green paper
came from the International Federation of Accountants (IFAC), who indicate that professional
education plays a critical role in equipping the auditor with skills for exercising professional
skepticism, and suggest that further research be undertaken to empirically assess the extent to which
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there is a lack of professional skepticism and explore the behavioral elements that may compromise
professional skepticism (IFAC 2010).
The Auditing Practices Board (APB), which is responsible for the development of auditing
practice in the United Kingdom and the Republic of Ireland, directly addresses the issue of
professional skepticism in a discussion paper issued in 2010 (APB 2010). The paper discusses the
degree of skepticism that auditors need to conduct a high-quality audit. Notable questions raised
include: What is the role of the auditors initial mindset (i.e., neutral position versus presumptive
doubt) in the audit process? Does a firms emphasis on client service and relationship management
serve as a disincentive for auditor skepticism? Do audit methodologies contribute to a lack of
skepticism (e.g., predefined audit tasks and checklists may potentially decrease the auditors
motivation and ability to pursue his/her own inquiries and follow up on responses with
management)? Do client-prepared workpapers influence the auditors mindset and make him/her
overly trusting, as well as influence the extent and nature of audit work performed? As regulators
issue more standards aimed at increasing professional skepticism, is there a risk that a move toward
rules versus principles demotivates auditors? What impact does corporate culture and governance
have on auditor skepticism? In addition to corporate culture, questions related to the influence of
individual cultural differences on auditors professional skepticism is another area requiring
research. For example, does skepticism vary between cultures?
Given the growth of multicultural audit teams, it is necessary to examine whether an auditors
culture matters and whether it negatively impacts efforts by multinational accounting firms to
deliver the same services throughout the world. In the best of all possible worlds, every auditor,
given the same set of facts, would select the same auditing procedures and apply them to the same
extent (Hicks 1974). However, audit professionals acknowledge that auditors professional
behavior is affected by cultural differences (Bik 2010). Internationally experienced senior auditors
and audit practice leaders view skeptical judgment and decisions as cultural, and note that
differences are largely associated with the general ability of the auditor to challenge client
representation, ask tough and probing questions, and have an independent mindset (Bik 2010).
Hofstede (2001) hypothesizes that the more judgment a task requires, the more it is influenced
by values and cultural dimensions. For example, we know that differences in cultural values help to
explain variations in responses to ethical dilemmas (e.g., Cohen et al. 1995), independence (e.g.,
Patel and Psaros 2000; Arnold et al. 1999), and risk assessment (Hughes et al. 2009). However,
there is limited research that specifically explores how cultural norms influence professional
skepticism.
Most audit research on cultural differences draws on Hofstedes (1980, 2001) work on national
cultures and looks at how various cultural dimensions impact auditors professional behavior across
countries. Overall, this research suggests that culture influences individual and collective values,
and these values influence professional and audit judgment (Patel et al. 2002). For example, one of
the cultural dimensions identified by Hofstede (1980, 2001) is power distance: the degree of power
or influence between a superior and a subordinate, as described by the subordinate. In an auditing
context, research finds that auditors are less willing to challenge client management or to question
reported financial statement amounts, and are more likely to give in to client pressures when they
are from high power distance cultures (e.g., Patel et al. 2002; Yamamura et al. 1996). Having a
questioning mind and being willing to ask tough questions as well as challenge client management
when necessary are all important attributes related to professional skepticism. As a result of their
cultural inclinations, auditors from high power distance cultures may not be able to exhibit an
appropriate level of skepticism despite the mandate of professional standards.
Another cultural dimension that has been studied is uncertainty avoidance, a desire for structure
and less ambiguity. Low uncertainty avoidance suggests a high tolerance for ambiguity. Auditors
from cultures with a high tolerance for ambiguity may be more secure in their professional
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judgments and more likely to focus on an issue, not simply the audit plan or rules (Cohen et al.
1993; Hughes et al. 2009). Finally, individualism versus collectivism (i.e., the extent to which
people are self-oriented versus group oriented) is another cultural dimension that has been
examined in audit research.
Cohen et al. (1993) suggest that auditors from more individualistic cultures have greater ability
to maintain high ethical standards in the face of pressure from superiors as compared to auditors
from collectivist cultures (i.e., group oriented) who may not be comfortable with having an
independent mindset (McKinnon 1984). Auditors in a culture that is high on collectivism and
power distance are less likely to pose probing questions to management or to perform additional
audit work to substantiate management assertions as compared to auditors in a culture that is low on
collectivism and power distance (Yamamura et al. 1996). Hughes et al. (2009) examine all three
dimensions and find that auditors from a high power distance and uncertainty avoidance and low
individualism culture are less likely to conclude that there is a significant risk of material
misstatement in account balances, even when industry and company events suggest such
misstatements are likely. This result suggests that auditors from these cultures may not perform
additional audit work to address a possible audit problem, nor make a critical assessment of the
evidence which may lead to a lack of skeptical judgment and action.
Overall, what we learn from limited research in this area is that professional skepticism is likely
to be influenced by cultural inclinations. Given that audit firms operate on an international level, it
is important for audit firms to understand the existence and nature of cultural diversity (Cohen et al.
1993). For example, in high power distance cultures it is considered disrespectful to challenge a
person of authority; therefore, staff-level auditors may be reluctant to challenge client explanations
provided by a person in an authoritative position. This suggests that a one-size-fits-all approach
to developing and training auditors to be more skeptical may be ineffective. Given the globalization
of business, and in particular auditing, the impact of cultural differences is an important area where
more empirical evidence is needed. To date, research has generally examined cross-country cultural
differences by comparing a set of auditors from one country to a set of auditors from a country that
is opposite on cultural dimensions. However, given the diversity that exists on audit teams, it is
important to understand how these cultural differences manifest within teams. For example, it is not
uncommon for U.S. audit practitioners to spend a considerable amount of time working in another
country that may not be culturally similar, and international audit practitioners often participate in
U.S. exchanges that may have a very different cultural background from the practitioners country
of origin. How does the auditor adapt in these situations? Do they maintain their home culture
values or assume the behavior of the culture where they are temporarily placed, and how does this
affect their ability to take skeptical actions? Also, does the experience level of the person matter in
these situations (i.e., audit senior versus audit partner), where power dynamics may play a larger
role. Along this line, what is the impact of cultural diversity on an audit team and does the impact
vary based on the role of the multicultural team members? If skepticism is influenced by
experience, or by training, or by the cultural environment in the audit firm, can any changes in
skeptical judgment and actions be maintained?
CONCLUSION
Professional skepticism is foundational to the performance of a high-quality audit. Consistent
with Nelson (2009), we suggest that professional skepticism can influence auditor judgment and
also auditor actions. Interestingly, most research has focused on auditor judgment (e.g.,
identification of issues), while the SEC and PCAOB inspection reports have focused primarily
on auditor actions. This disconnect between what we are beginning to understand about skepticism
and what standard setters are interested in understanding must be addressed by future research.
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We have synthesized existing research and suggested areas where accounting academics
should continue to pursue future research. Academic research indicates that auditors do approach an
audit with the intention of being professionally skeptical and they respond to risk by changing
behaviors; however, the SEC and PCAOB have consistently found a lack of professional skepticism
in practice. Our research indicates several possible explanations: individual auditor characteristics
may influence the ability of an auditor to recognize situations where additional work or
investigation is required; unconscious bias may influence an auditors judgments or actions; and
lack of knowledge, experience, or expertise may impede skeptical judgments.
There is evidence that professional skepticism allows auditors to identify more fraud cues,
expand budgeted audit hours, identify more contradictions, generate more alternative explanations,
and negotiate more forcefully with a client. However, research is limited to the actions that auditors
actually take related to their professional skepticism, and we call for more research into the
important area of skeptical actions.
How can professional skepticism be enhanced? Research has noted the influence of reviewer
preference, training, and experience or expertise. We encourage further research in this area,
including individual and firm incentives, individual evaluations and reward structure, moral
reasoning, responsibility to stakeholders, and further work in the area of training and education. As
noted above, unconscious bias may impede the exercise of professional skepticism, but there is
some limited evidence that trait skepticism combined with other characteristics may overcome a
portion of that bias.
In summary, although academic research has begun to address professional skepticism, it
remains a topic where there are many more questions than answers. Unfortunately, some
well-intentioned regulatory changes may have had unintended consequences that can actually
reduce the professional skepticism that exists (e.g., Piercey 2011).
This synthesis also has implications for practicing auditors and regulators. First, given the link
between business-related engagement knowledge and skeptical judgment (e.g., Peecher et al. 2007;
Knechel et al. 2010; Brewster 2012), auditors should be encouraged to assess strategic and
business-related risks, as well as risks of financial statement misstatement, in order to develop the
expertise necessary to engage in skeptical judgments. In addition, given that there have been
demonstrated differences in skepticism by experience level within the firm with a possible decrease
in skepticism as one moves up through the firm hierarchy, the issue of task-specific experience at
each level in the hierarchy should be addressed as part of the inspection process by the PCAOB. For
example, during the PCAOBs inspections attention should be focused on whether the appropriate
level of staff is performing specific tasks, and on whether task level seems to impact professional
skepticism.
Peecher et al. (2010, 30) suggest that during the inspection process, regulators should consider
placing less emphasis on audit deficiencies resulting from judgment errors and instead provide
auditors with balanced feedback so that they learn the traits inspectors consider as markers of more
desirable or exemplary judgment processes or instances of the exercise of professional skepticism.
In this way, the inspection process itself, by providing meaningful feedback to auditors about the
effectiveness of skeptical judgment processes, may serve as one type of training opportunity to
enhance auditors skeptical judgments.
The PCAOB can effectively encourage more skeptical behavior among auditors by focusing on
the personnel policies and reward structures in audit firms through the audit quality review that is
done as part of the inspection process. For example, firms could design incentive structures that
would motivate auditors to think skeptically and deter motivated blindness. They could develop
and test the effectiveness of incentives that reward auditors who exhibit skeptical actions, while
ensuring that audits are conducted in an efficient manner. The PCAOB might further encourage
firms to reward skeptical judgment processes rather than simply beneficial outcomes by focusing on
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positive processes rather than negative outcomes during its inspection process. Finally, the PCAOB
may wish to pay particular attention to the tone and influence of reviewer comments on junior
auditors skepticism. This would be an important area to evaluate in the inspection of quality
control programs in place at the firms.
Auditing standards already caution auditors to conduct the engagement with a mindset that
recognizes the possibility that a material misstatement due to fraud could be present, regardless of
any past experience with the entity and regardless of the auditors belief about managements
honesty and integrity (AICPA 2007, para. 13). However, the research cited above indicates that
the effect of management integrity is largely unconscious. Therefore, although it is worth
cautioning auditors to remain skeptical of management whom they believe to be honest, regulators
must recognize the possibility that auditors may be unconsciously biased and promote safeguards to
address this. Additional standards could be developed which require the auditors to view assertions
in a negative rather than in a positive light, or further caution auditors to be careful in objectively
verifying all items of evidence that are provided by management.
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Supplement 1, 2013
Auditors Professional
Skepticism: Neutrality
versus Presumptive Doubt
(Quadackers et al. 2011)
Exploration of
Skepticism, ClientSpecific Experiences, and
Audit Judgments (Popova
2012)
An Experimental
Examination of
Professional Skepticism
(Hurtt et al. 2012)
Study
Method
Experimental
Experimental
Experimental
Panel A: Skeptical Judgment
Audit professionals
Dependent variables
Evidence assessment
Generation of alternatives
Independent variables
Trait skepticism (measured)
Risk (manipulated)
Senior undergraduate and graduate accounting
majors
Dependent variables
Initial hypothesis generation (manipulated)
Evidence evaluation
Conclusion about the presence of fraud
Trait skepticism measured)
Client experience (manipulated)
Audit professionals
Dependent variables
Likelihood that management explanation
is right
Likelihood of fraud
Number of alternative explanations
Number of total error explanations
Weight of total error explanations
Number of budgeted hours
Skepticism (measured)
Control risk (manipulated)
Sample, Dependent Variables,

and Independent Variables
APPENDIX A
Summary of Research Studies

Supplement 1, 2013
(continued on next page)
Both the RIT and HPSS scores are significantly

associated with auditor judgments and marginally
significantly associated with the weight given to error
explanations. In a high internal control risk setting, the
number of error explanations generated is significantly
higher and weight of error explanations is marginally
higher for auditors with high RIT scores.
Although auditors respond to risk by increasing effort

(by examining more workpapers), more skeptical
auditors were significantly more likely to find a higher
number of errors in the workpapers. Moreover, trait
skepticism interacted with risk such that more
skeptical auditors in the heightened risk factor
condition identify the most contradictions.
Trait skepticism and client experience interact to
influence auditors hypothesis evaluation and search
for audit evidence, with negative client experiences
leading to greater fraud-related hypotheses.
Major Findings
80

Supplement 1, 2013
Experimental
The Effect of
Benchmarked
Performance Measures
and Strategic Analysis on
Auditors Risk
Assessments and Mental
Models (Knechel et al.
2010)
Graduate accounting students

Dependent variable
Pre-test skepticism score, and change in preand post-test skepticism scores
Tone at the top (manipulated)
Personality (measured)
Motivation (measured)
Audit professionals
Dependent variables
Attention to evidence of aggressive reporting
Likelihood of intentional misstatement
Skepticism (induced)
Trust (measured)
Audit experience, fraud experience
Audit professionals
Dependent variables
Perception of business performance
Assessment of business risk and risk of
material misstatement
Performance measures (manipulated)
Strategic analysis (manipulated)
Experimental
Experimental
Undergraduate and graduate accounting majors

Dependent variable
Ethical perception of earnings management
Independent variable

Experimental
Method
Financial Reporting and

Intentional Misstatement
Judgments: Effects of
Experience and Trust
(Rose 2007)
The Impact of
Accounting Students
on Their Ethical
Perception of Earnings
Management (Farag and
Elias 2012)
The Role of Personality
and Motivation in
when Tone at the Top
Varies (Rosman 2011)
Study
APPENDIX A (continued)
Auditors who have developed a more complex mental

model of the clients environment will exhibit
improved information processing and more accurate
risk assessment judgments.
Auditors who are less trusting pay more attention to

evidence of aggressive reporting and are more likely
to believe that intentional misreporting has occurred.
Further, fraud-specific experience directly influenced
judgmentnot simply through the path of more
attention to details.
Extroverts were more skeptical with stronger support

from a superior but less skeptical with lower
support, whereas the opposite was observed for
introverts. Further, highly motivated students
exhibited high levels of trait skepticism, regardless
of audit firm tone at the top or personality type.
Students scoring high on trait skepticism view earnings

management situations as more unethical than
students who score low on trait skepticism.
Major Findings

81
Experimental
Experimental
Encouraging Professional
Skepticism in the
Industry Specialization
Era (Grenier 2011)
The Influence of Roles,

Advocacy, and
Adaptation to the
Accounting Decision
Environment (Pinsker et
al. 2009)
Experimental
Method
How a Systems
Perspective Improves
Knowledge Acquisition
and Performance in
Analytical Procedures
(Brewster 2011)
Study
Audit professionals
Dependent variables
Mental model and effort (measured)
Accuracy of expectations
Management credibility
Updating of mental model
Industry analysis (manipulated)
Consistency of managements representation
(manipulated)
Audit professionals
Dependent variables
Probability of unknown misstatement
Number of fraud explanations generated
Probabilities assigned to fraud explanations
generated
Specialization (measured)
Skepticism target (manipulated)
Accounting professionals and graduate accounting
students
Dependent variable
Initial and revised belief
Attitude (measured)
Professional role (audit or tax)

Auditors scored much lower on the advocacy attitude

scale than tax accountants and were less able to
switch to an advocacy attitude in the tax case than
tax professionals were able to switch to a more
skeptical attitude in the audit case.
Industry specialist auditors are more likely to be

skeptical when primed to critically assess their own
judgment processes rather than simply being told to
be skeptical of evidence.
Both auditors with a deep understanding and those that

have a shallow understanding of client business
processes initially reject the clients self-serving
incorrect explanation of a fluctuation. However, a
short time later (5 minutes or so) only those auditors
who are given a deeper understanding of a clients
complex business process correctly recall the causes
of price increases.
Major Findings
82

Supplement 1, 2013
Audit professionals
Dependent variables
Assessment of control weaknesses
Assessment of fraud factors
Type of workpapers (manipulated)
Task-specific experience (measured)
Audit professionals
Dependent variable
Skepticism (assessment of client
truthfulness)
Fraud risk (manipulated)
Experience
NA
NA
Experimental
Experimental
NA
NA
Fraud Risk Assessments

and Auditors
(Payne and Ramsay
2005)
A Discussion of Auditor
Judgment as a Critical
Component in Audit
QualityA Practitioners
Perspective (Wedemeyer
2010)
Improving the Quality of
Financial-Statement
Audits by Updating
External Auditors
Accountabilities (Peecher
et al. 2010)
Method
The Effect of
Documentation Structure
and Task-Specific
Experience on Auditors
Ability to Identify
Control Weaknesses
(Agoglia et al. 2009)
Study

Supplement 1, 2013
The authors make several recommendations that

auditors and regulators should consider in order to
improve audit quality such as regulators should
place less emphasis on audit deficiencies resulting
from judgment errors and instead provide auditors
with balanced feedback so that they learn the traits
inspectors consider instances of the exercise of
Preparers who are required to document important

positive and negative information for components of
their fraud assessment incorrectly provided more
favorable, lower quality assessments as compared to
those preparers required to document by providing
supporting evidence or to document both positive
and negative evidence. The effect is moderated by
the preparers task-specific experience. Additionally,
reviewers with more task-specific experience were
able to compensate for the differences in
documentation format.
Skepticism declines when there is a low fraud risk
assessment made during the planning stage. Auditors
in both the no-knowledge and high-risk scenario
were more skeptical than those in the planning-stage
low-risk scenario. Therefore, the level of fraud risk
primed auditors to be less skeptical. Senior-level
auditors were overall less skeptical than staff
auditors.
The author suggests that the apprenticeship model of
developing audit judgment, which relies heavily on
the teaching of earlier experiences to new
apprentices, may be susceptible to problems when
environmental conditions change.
Major Findings

83
Experimental
Audit professionals
Dependent variables
Judgment related to risk of material
misstatement
Likelihood of a material misstatement due
to fraud
Judgment related to evidence reliability
Skeptical orientation (manipulated)
Partner attribution (manipulated)
Audit professionals
Dependent variable
Generation of explanation for unusual
events or transactions
Training (manipulated)
Experimental
Enhancing Professional
Skepticism via the Fraud
Brainstorming Discussion
Outcomes (Harding and
Trotman 2011)
Training Auditors to
Think Skeptically
(Plumlee et al. 2012)
Workpaper data from 60 clients of a Big 4 firm

Dependent variables
Risk of material misstatement
Persuasiveness of evidence
Timing and extent of evidence
Audit differences
Management integrity

Archival
Method
The Impact of
Management Integrity on
Audit Planning and
Evidence (Kizirian et al.
2005)
Study
Participants who received both divergent and

convergent training were more likely to generate and
ultimately choose the correct explanation compared
to those who received only divergent or no training.
Additionally, divergent thinking training increased
both the number and quality of explanations
generated for an unusual situation.
Clients with higher assessed levels of integrity have

lower preliminary risk assessments, but prior-year
error better explains risk and planning assessments
than the management integrity assessment.
Additionally, management integrity exhibits
incremental explanatory power beyond the risk of
material misstatement for the persuasiveness of audit
evidence collected and is associated with the
discovery of current period misstatements.
Controlling for trait skepticism, the results indicate that
when the view came from client management, the
auditors responded with more skeptical judgments
than when the view came from the partner or no
view was provided. Further, outward orientation
(which emphasizes that management representations
should be viewed with doubt) generally enhances the
level of skepticism of managements view than an
inward orientation.
Major Findings
84

Supplement 1, 2013
Experimental
Experimental
Experimental
NA
The Incremental Benefits

of a Forensic Accounting
Course on Skepticism and
Fraud-Related Judgments
(Carpenter et al. 2011)
Predecisional Distortion
of Evidence as a
Consequence of RealTime Audit Review
(Wilks 2002)
Good People Often Let

Bad Things Happen.
Why? (Bazerman and
Tenbrunsel 2011)
Method
Impact of the Type of

Audit Team Discussions
on Auditors Generation
of Material Fraud
(Trotman et al. 2009)
Study

Supplement 1, 2013
NA
Audit professionals
Dependent variables
List potential misstatements due to fraud
Likelihood of material misstatement due
to fraud
Mental simulations of potential misstatement
due to fraud
Brainstorming group (manipulated)
Undergraduate and graduate accounting students,
accounting professionals
Dependent variable
Initial and final fraud risk assessment
Training (manipulated)
Audit professionals
Dependent variable
Evidence evaluation
Partners view (manipulated)
Time when view learned (manipulated)

Participants exhibit greater professional skepticism after

completing the forensics course than when they
began. Also they exhibit greater skepticism when
they have been trained. Additionally, the judgments
of students trained in forensic accounting were
similar to those of a panel of experts.
Auditors who learn the partners view before
evaluating evidence evaluate individual evidence
items as more consistent with the partners view,
and make going concern judgments that are more
consistent with the partners view, than do auditors
who learn the same partners view after evaluating
evidence. Additionally, auditors expect subordinates
to make judgments that agree with supervisors
views.
The authors suggest that audit firm goals and reward
incentives should be examined and that auditors
often do not feel extrinsically motivated to make
skeptical judgments, because incentive systems do
not reward them for the process of making skeptical
judgments, but only reward for successful results
from skepticism.
Groups who engaged in the pre-mortem backward

thinking generated more misstatements and more
quality fraud ideas than the interacting group, and
there was no measurable difference between the premortem group and the group who were given
brainstorming rules.
Major Findings

85
NA
Examining the
Construct through the
Lens of Attitude Theory
(Nolder 2012)
Audit professionals
Dependent variables
Prescriptive reasoning
Deliberative reasoning
Audit versus tax experience (measured)
Moral intensity (measured)
Professional skepticism (measured)
NA
Executive MBAs
Dependent variable
Intent to manipulate
Information asymmetry (measured)
Incentive to shirk (measured)
Fairness (measured)
Experimental
Experimental
Audit professionals
Dependent variables
Risk of management fraud
Satisfaction with client
Trust (measured)
Moral reasoning (measured)

Experimental
Method
The Ethical Decision

Making of Auditors and
Tax Professionals: The
Role of Context, Moral
Intensity, and Individual
Attributes (Bobek et al.
2012)
The Effects of
Satisfaction with a
Clients Management
During a Prior Audit
Engagement, Trust, and
Moral Reasoning on
Auditors Perceived Risk
of Management Fraud
(Kerler and Killough
2009)
The Effects of Perceived
Fairness on Opportunistic
Behavior (Cohen et al.
2007)
Study
The author examines the issue of affect and the role

that affect plays in shaping a skeptical attitude.
Specifically, auditors emotional reactions in highrisk settings will influence their level of skepticism.
Individuals who perceive an action to be unfair are less

likely to engage in the unfair action regardless of the
potential payoff and the likelihood that the unfair
action will remain undiscovered. Therefore,
situational factors such as the perceived fairness of
an action are important in promoting the ethical
behavior of individuals in managerial accounting
situations.
In a tax context, participants are both more likely to
concede to a contentious client and more likely to
recommend conceding as opposed to participants in
an audit context. Furthermore, lower levels of
perceived moral intensity lead to a higher likelihood
of conceding to the client.
When auditors had a previous positive experience with

management, they trusted management more than
when the previous experience was negative. For
those auditors who had a negative experience, the
level of trust affected subsequent fraud risk
assessments. They also found moral reasoning has
no relationship to level of trust.
Major Findings
86

Supplement 1, 2013

Supplement 1, 2013
Audit Risk Assessments

Using Belief versus
Probability (Fukukawa
and Mock 2011)
The Business Risk Audit
(Knechel 2007)
The Impact of Positive

and Negative Mood on
Hypothesis Generation
and Ethical Judgments of
Auditors (Cianci and
Bierstaker 2009)
The Effect of Moods on
Auditors Inventory
Valuation Decisions
(Chung et al. 2008)
Study
NA
Audit professionals
Dependent variable
Assessments of the truthfulness of
management assertions
Risk assessment approach
Assertion framing
Assertion (within subjects)
Timing of risk assessment (within subjects)
Experimental
Audit professionals
Dependent variables
Hypothesis generation
Ethical judgments
Mood states (manipulated)
Audit professionals
Senior-level audit students
Dependent variable
Inventory valuation judgment
Mood states (manipulated)

NA
Experimental
Experimental
Method
The author posits that most of an audit is now done

through discussioninterviews with the client and
suggests that reasonable-sounding stories are
accepted by auditors, despite the requirement for
Auditors are prone to confirm a given assertion
regardless of whether it is stated positively or
negatively. However, auditors given a negatively
stated audit assertion seem to exhibit more
skepticism than auditors who are given a positively
stated assertion. Further, the risk assessment
approach influences the effects of the framing of
assertions. However, this effect was only found in
the positive assertion frame.
Auditors judgments are influenced by their mood

states. Specifically, auditors in the negative (versus
positive) mood condition generated more correct
explanations for fluctuations in the gross margin and
inventory turnover ratios and made less ethical
judgments.
Moods have the potential to affect audit judgment in
an ambiguous task setting. Specifically, auditors in
the positive-mood condition had the lowest judgment
consensus and the least conservative inventory
judgments when compared with the neutral- and
negative-mood participants. Results held with
student participants.
Major Findings

87
Tucker (2003)
The Effects of
Ingratiation and Client
Incentive on Auditor
Judgment (Robertson
2010)
The Effect of Information
about Management on
Auditors Inherent and
Fraud Risk Assessments
(Earley et al. 2010)
The World Has

ChangedHave
Analytical Procedure
Practices? (Trompeter and
Wright 2010)
Study
Experimental
Experimental
Experimental
Field Survey
Method
Audit professionals
Dependent variables
Inherent risk assessment
Fraud risk assessment
Management integrity (manipulated)
Fraud indicators (manipulated)
Type of risk assessment (within subjects)
Audit professionals and graduate accounting
students
Dependent variables
Likelihood of booking an adjusting entry
Affect
Assessment of clients explanation
Ingratiation (manipulated)
Client incentive (manipulated)
Economics
Audit professionals


Supplement 1, 2013
Auditors express fewer going concern opinions

( judgments) when the auditors report of a going
concern issue contributes to a self-fulfilling
prophecy, and clients who anticipate receiving a
going concern opinion switched auditors more
frequently when the report is self-fulfilling.
When the client is ingratiating, auditors are more likely

to comply with the requests of clients with low
incentive to influence the auditor than with requests
of clients with high incentive. Additionally, the
greater the positive affect toward the client, auditors
are more likely to comply with the clients requests.
Additionally, student participants were less likely to
comply with client requests than professionals.
Judgments of inherent risk are not impacted by

management integrity manipulations, but judgments
of fraud risk are inappropriately low in the case
where management is of high integrity and fraud is
present in the pattern of cues provided.
Auditors continue to rely a great deal on clients for

information to set expectations and evaluate
explanations. However, auditors now appear to
consult with non-financial client personnel more,
which should result in a broader business focus as
well as a more objective view than simply
consulting with accounting personnel.
Major Findings
88
Experimental
Experimental
Experimental
Are Auditors Skeptical of

Managements Fair Value
Classification Judgments?
(Earley et al. 2012)
Effects of Earnings
Forecasts and Heightened
on the Outcomes of
Client-Auditor
Negotiation (Brown et al.
2012)
Method
Reducing Managements
Influence on Auditors
Judgments: An
Experimental
Investigation of SOX 404
Assessments (Earley et al.
2008)
Study
Audit professionals
Dependent variables
Experiment 1
Assessment of ICFR problem
Experiment 2
Assessment of the severity of the
ICFR problem
Financial statement account affected
Nature of the effect
Final assessment of the ICFR problem
Management classification (between
subjects; manipulated)
Case (within subjects)
Audit professionals
Dependent variables
Quality of managements fair value
judgment
Quality of alternative fair value judgment
Security type (manipulated)
Management preference
Valuation level (within subjects)
Audit professionals
Dependent variable
Final EPS
Forecasted EPS (manipulated)
Professional skepticism (measured)


Supplement 1, 2013
Auditors who exhibit heightened professional

skepticism are less likely to acquiesce to client
preferences than auditors who do not exhibit
heightened professional skepticism. This effect is
more pronounced when the client has incentives to
manage earnings.
Auditors act more skeptically in a high-risk context,

but this is attributed to the higher litigation risk and
regulatory scrutiny in these contexts, rather than
client-specific risk.
Auditors who first receive management assessment of

internal controls (SOX 404b) are biased in their
judgments about internal control. However, when
auditors are required to evaluate and document the
financial statement impact of internal control
problems their biases are reduced.
Major Findings

89
Experimental
The Effect of Magnitude

of Audit Difference and
Prior Client Concessions
on Negotiations of
Proposed Adjustments
(Hatfield et al. 2010)
External Environmental Characteristics

Experimental
Accountability Demands
and the Auditors
Evidence Search Strategy:
The Influence of
Reviewer Preferences and
the Nature of the
Response (Belief versus
Action) (Turner 2000)
Experimental
Professional Skepticism:
The Effects of a Partners
Influence and the Presence
of Fraud on Auditors
Fraud Judgments and
Actions (Carpenter and
Reimers 2012)
Experimental
Method
Concede or Deny: Do
Management Persuasion
Tactics Affect Auditor
Evaluation of Internal
Control Deviations?
(Wolfe et al. 2009)
Study
Audit professionals
Dependent variables
Amount of information search
Average time of search
Pattern of search
Reviewers preference (manipulated)
Type of response (manipulated)
Audit professionals
Dependent variables
Identification of fraud risk factors
Fraud risk assessments
Choice of audit procedures
Emphasis on skepticism (manipulated)
Presence of fraud
Audit professionals
Dependent variables
Assessed significance of deficiency
Adequacy of managements explanation
Assessed management blame
Type of persuasion tactic
Type of control deviation
Control deviation
Audit professionals
Dependent variables
Negotiation goal
Negotiation limit
Magnitude of audit difference
Prior client concession


Supplement 1, 2013
When accountable to a partner who emphasizes

professional skepticism, audit managers make higher
fraud risk assessments and responded to the risks
with appropriate audit procedures when fraud is
present, compared to those audit managers
accountable to a partner who does not emphasize
The preference of the reviewer influences both the type

and amount of evidence that auditors select, and the
required response influences evidence amount and
time of search.
Auditors exhibit a lack of skepticism when management

persuasion tactics lower the assessed severity of a
potential significant deficiency. Concessionary
persuasion tactics lead to auditors placing less blame
on management for control deviations and result in
auditors assessing a lower significance of the control
deficiency. Additionally, auditors perceive the
adequacy of management explanations higher for
concessionary than denial persuasion tactics.
The greater the difference between the auditors initial
estimate of a financial statement value and the
clients value, the more likely the auditor is to
initially offer a lower adjustment and eventually
settle for a lower amount.
Major Findings
90

Supplement 1, 2013
Former Audit Partners
and Abnormal Accruals
(Menon and Williams
2004)
Study
Panel B: Skeptical Action
Documentation
Requirements and
Quantified versus
Qualitative Audit Risk
Assessments (Piercey
2001)
Fraud Brainstorming
Using ComputerMediated
Communication: The
Effects of Brainstorming
Technique and
Facilitation (Lynch et al.
2009)
Study
Archival
Method

Audit professionals
Dependent variable
Probability of a material misstatement
Documentation (manipulated)
Response mode (manipulated)
Senior undergraduate accounting students
Dependent variables
Fraud factors identified
Change in fraud risk assessment
Brainstorming mode (manipulated)
Facilitation (manipulated)

Companies where a director or officer was

previously a partner at the accounting firm that
audits the company (FP firm), and a matched
sample of non-FP firm
Dependent variables
Abnormal accruals
Earnings surprise
Partner or not
Experimental
Experimental
Method
Companies that employ a former partner as an officer

or a director report larger accruals, especially when
the former partner is a financial officer, and are more
likely to just meet earnings forecasts.
Major Findings
Electronic brainstorming results in a heightened

awareness of fraud risks as compared to face-to-face
brainstorming. Additionally, fraud risk assessments
after participating in a brainstorming session are higher
than initial fraud risk assessments, indicating that the
knowledge transferred during brainstorming sessions
results in a heightened awareness of fraud risk.
When documenting qualitative judgments, auditors

who assess the risk in words are more lenient than
in their undocumented qualitative judgments.
Major Findings

91
Audit professionals and PCAOB inspection reports
Field Study
An Experimental
Investigation of Retention
and Rotation
Requirements (Dopuch
and King 2002)
The Impact of Auditor
Rotation on Auditor
Client Negotiation (Wang
and Tuttle 2009)
Experimental
Market
Experimental
Market
Sample of Korean firms with mandated auditor

changes and a matched sample of firms without
mandated auditor changes
Dependent variable
Discretionary accruals
Auditor designation (manipulated)
Dependent variables
Auditor report
Manager investment
Regime (manipulated)
Graduate business students
Dependent variable
Negotiation strategy
Rotation (manipulated)

Method
External Environmental Characteristics

Archival
Does Auditor Designation
by the Regulatory
Authority Improve Audit
Quality? Evidence from
Korea (Kim and Yi 2009)
Client Characteristicsa
NA
Auditing Complex
Estimates: Understanding
the Process Used and
Problems Encountered
(Griffith et al. 2010)
Study
The imposition of mandatory auditor rotation decreased

willingness to bias reports in favor of management,
relative to the regime in which neither mandatory
auditor rotation nor mandatory retention was
imposed.
Mandatory rotation results in the auditor being more
likely to adopt non-cooperative negotiation strategies
and that the negotiation is more likely to end in
impasse.
Firms with designated auditors are less likely to report

income-increasing accruals. They also find that firms
with mandatory auditor change have lower
discretionary accruals compared to firms with
voluntary auditor change.
Auditors tend to focus on auditing managements

process for arriving at estimates, rather than trying to
determine the estimated amount independently and
then corroborating their estimate with managements.
Auditors overrely on management assertions, fail to
notice and reconcile when external evidence
conflicts with management assumptions, and
overrely on outside specialists.
Major Findings
92

Supplement 1, 2013
A sample of public companies (19831998)

Dependent variables
Discretionary accruals
Earnings management incentives
Auditor type
Undergraduate students
Dependent variables
Level of audit quality
Trust
Accuracy of assessment of trust
Auditor rotation (manipulated)
Assessment frame (manipulated)
Unstructured chat (manipulated)
Audit professionals
Experimental
Markets
Survey
The Effects of Auditor

Rotation, Professional
Skepticism, and Interactions with Managers on
Audit Quality (Bowlin et
al. 2011)
The Behavior of
Assurance Professionals
(Bik 2010)

Archival
Method
Auditor Conservatism,
Asymmetric Monitoring,
and Earnings Management (Kim et al. 2003)
Study

Supplement 1, 2013
Big 6 auditors are more effective than non-Big 6

auditors in deterring/monitoring opportunistic
earnings management only when managers have
incentives to prefer income-increasing accrual
choices. Additionally, they find Big 6 auditors are
less effective than non-Big 6 auditors when both
managers and auditors have incentives to prefer
income-decreasing accrual choices, and thus no
conflict of reporting incentives exists between the
two parties.
The effects of auditor rotation on audit quality differ
depending on how auditors assess managers.
Specifically, when auditors assess managers
honesty, auditor rotation reduces the trust that
auditors place in managements representations about
the financial statements and increases audit effort.
However, when auditors evaluate managers in terms
of their potential dishonesty, auditor rotation
increases the trust that auditors place in managers
representations and decreases audit effort.
Survey participants observe that judgment and decision
making, skeptical judgments and decisions,
knowledge sharing and consultation behavior, and
engagement partner involvement are most severely
affected by cultural differences. Specifically to
skeptical judgment and decisions, participants view
it as cultural and note that differences in auditors
skeptical judgments and decisions are largely
associated with the general ability of the auditor to
challenge client representation, ask tough and
probing questions, and have an independent mindset.
Major Findings

93
Experimental
Experimental
A Comparison of
Japanese and U.S.
Auditor Decision-Making
Behavior (Yamamura et
al. 1996)
The Impact of Cultural

Environment on EntryLevel Auditors Abilities
to Perform Analytical
Procedures (Hughes et al.
2009)
Undergraduate accounting students

Dependent variables
Judgment accuracy
Risk of material misstatement
Culture
Audit professionals (from India, Malaysia, and

Australia)
Dependent variables
Likelihood of conceding
Assessment of ethical behavior
Culture (measured)
Ethics (measured)
Audit professionals (U.S. and Japan)
Dependent variables
Assessment of inherent risk
Relevant audit procedures
Culture
Audit experience

U.S. auditors were less likely to accept managements

judgments than Japanese auditors, the results were
mixed for assessment of inherent risk, and this
appears to be less a function of cultural differences
and more likely due to the state of the national
business environment. Further, seniors selected
significantly more audit procedures than audit
partners and managers.
Cultural characteristics do not affect the ability to
predict income statement balances, but may affect
the ability to predict balance sheet account balances.
Further, regardless of culture, forming expectations
of current-year account balances did not improve the
participants abilities to appropriately assess the risk
of material misstatement of the current-year
unaudited accounts.
Cultural values influence the judgments of professional

accountants with respect to auditor-client conflict
resolution. Specifically, Australian professional
accountants are less likely to resolve audit conflicts
by acceding to clients than Indian and Chinese
Malaysian accountants, and are also less accepting
of resolving audit conflicts in this way.
Major Findings
a
Refer to a summary of Hurtt et al. (2012) and Quadackers et al. (2011). Both studies find that in high-risk settings, auditors respond by increasing audit effort (i.e., greater
budgeted hours, additional audit procedures).
Experimental
Method
Cultural Influences on
Judgments of Professional
Accountants in Auditor
Client Conflict Resolution
(Patel et al. 2002)
Study
94

Supplement 1, 2013
Auditors with higher levels of trait skepticism and/or who are less
trusting tend to exhibit more skeptical judgments (i.e., identification
of more contradictions, generation of alternative explanations, focus
on fraud cues, less reliance on managements explanations).
Auditors with higher scores on presumptive doubt and neutral
skepticism measures exhibit higher levels of skeptical judgment
overall.
Task-specific and client-specific experience enhances skeptical
judgment. However, general experience and industry expertise do
not always lead to more skeptical judgments.
Instructing auditors to be more skeptical of evidence is not as
effective as getting them to understand (and be skeptical of ) their
own processing and where they might be prone to biases in their
judgments, training them to consider both sides of issues more
explicitly, or getting them to alter their thought processes.
The firms philosophy and operating style is an important
antecedent for incentivizing and motivating auditors to become
more skeptical. However, individual personality traits are also very
important determinants of whether the auditor exhibits an
appropriate level of skepticism.
Auditors are more likely to recommend conceding to a contentious
client in a low moral intensity setting.
Auditors affective response to risks may significantly contribute to
variations in their skeptical judgments and actions.
Major Research Findings


Supplement 1, 2013
Can trait skepticism be influenced by training or experience?

Does high trait skepticism lead to over auditing, and thus
reduced audit efficiency?
How do firm- and office-level factors influence skeptical
judgment and action by audit firm members?
What factors cause auditors to make less skeptical judgments
despite having industry expertise (i.e., incentive, firm
pressures)?
What training and/or intervention methods are effective in
helping auditors to recognize issues that require more evidence
(i.e., improve skeptical judgment)?
What role does motivation play in skeptical judgments (i.e.,
does being more motivated to think skeptically necessarily result
in better judgments)?
Does a firms client service philosophy or operating style (i.e.,
personnel evaluation) serve as a disincentive for auditor
skepticism?
Does an auditors value system or moral reasoning ability affect
the ability to evaluate evidence by allowing the auditor to
understand the clients mindset in preparing the evidence (i.e.,
the ability to view the evidence through the clients eyes) and
therefore approach the audit with more of a skeptical mindset?
What is the relationship between being positively inclined
toward the client and an inability to notice problems, and the
ability to evaluate evidence in a thorough and careful way?
Selected Questions for Future Research
APPENDIX B
Summary of Major Research Findings and Questions for Future Research

95
Are auditors able to maintain professional skepticism when they

perceive the client to be honest?
What is the impact on auditor skeptical judgments related to
complex business models or transactions, and will training help
auditors to understand these complexities?
What are the factors that exist in practice that cause a lack of
skeptical action, despite skeptical judgments in these high-risk
contexts?
What are the circumstances that enhance or threaten skepticism
in auditor-client negotiations?
Are audit committee members who exhibit greater professional
skepticism more likely to side with the auditor in the event of
significant auditor-management disputes with respect to the
financial reporting process?
Auditors are unable or unwilling to recognize the pattern of fraud
cues when they believe management is honest, which indicates a
lack of skeptical judgment.
The complexity of the clients business or accounting transactions
for which auditors are not well trained potentially leads to a decline
in auditor skepticism exhibited.
In a high-risk context, auditors make more conservative and
skeptical judgments.
Auditors are able to exhibit skeptical judgments and to be
conservative in their negotiations with clients, but the ability to
exercise skeptical judgment is dependent on the persuasion tactic
used by management, the size of the difference between the
auditors initial judgment and the clients amount, and whether the
auditor had conceded in past negotiations.
Effective corporate governance enhances auditors ability to be
more resolute with clients.
Will the value placed on evidence obtained through client inquiry

and the consequent exercise of professional skepticism, vary based
on the quality of corporate governance?
Do audit methodologies contribute to a lack of skepticism (i.e.,
decrease the auditors motivation and ability to pursue his/her
own inquiries and follow up on responses with management)?
Do client-prepared workpapers influence the auditors mindset
and make him/her overly trusting, as well as influence the extent
and nature of audit work performed?
Does the level of ambiguity or specificity in standards impede
or enhance skeptical action?
Auditors continue to rely a great deal on clients for information to
set expectations and evaluate explanations when performing certain
audit procedures.
Auditors respond more skeptical when client management assesses
fraud risk as low than when the view is expressed by the partner or
no view was provided.
Auditors are less likely to acquiesce to the clients preferred
position when authoritative standards more explicitly support the
auditors position.
APPENDIX B (continued)
96

Supplement 1, 2013

As reviewer skepticism increases and is communicated to the
auditors being reviewed, the reviewed auditors will exhibit
increased skepticism even when it is inefficient to do so.
When accountability acts as an incentive, auditors exhibit more
skeptical judgments, but specific requirements of the auditing
standards can cause auditors to engage in cognitive processing that
may result in reduced skepticism.
Heightened reputational and litigation costs potentially lead auditors
to exercise greater professional skepticism.
Skepticism decreases as an auditor moves up within the audit firm
hierarchy or becomes more experienced.
Auditors view skeptical judgment as cultural, and believe that
differences in auditors skeptical judgments and decisions are
largely associated with the general ability of the auditor to
challenge client representation, ask tough and probing questions,
and have an independent mindset.


Does the apprenticeship nature of public accounting also mean that
being trained by a reviewer inclined toward less skepticism can
perpetuate a client advocacy position within audit firms?
Will proposed safeguards designed to promote independence
(and reduce bias) or the move toward a more principle-based
accounting regime result in auditors automatically taking more
skeptical actions, or are there other factors that would influence
their level of skeptical action?
Are auditors more skeptical when they adopt a mindset of
accountability to shareholders/stakeholders as compared to
regulators or client management?
How does the pressure to complete audit work under tight time
constraints impact auditors ability to exhibit skeptical
judgment?
Does legal action against the firm influence skeptical behaviors,
or might the social distance (or other barriers) between the
action and the individual mediate the influence of potential legal
liability on individual auditor behavior?
What impact does the nature and timing of incentives, positive
(rewards) versus negative (punishment) incentives, and
individual versus team- or group-level incentives on skeptical
action?
How do auditors working in a different culture adapt to the
cultural norms of that culture (e.g., do they conform to their
home culture or assume the behavior of the culture where they
are temporarily placed), and how does this affect their ability to
take skeptical actions?
APPENDIX B (continued)

Supplement 1, 2013
97
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Vol. 32, Supplement 1

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