The combined effect of perspective-taking and incentives on professional skepticism
ISSN: 0268-6902
Article publication date: 19 November 2021
Issue publication date: 3 January 2022
Abstract
Purpose
This paper aims to investigate the combined effect of two interventions, perspective taking and incentives, on auditors’ professional skepticism (hereafter skepticism) when auditing complex estimates. Specifically, this paper examines the different ways that perspective taking (management versus inspector) and incentives (absent versus reward versus penalty) combine to impact skepticism.
Design/methodology/approach
This paper uses an experiment with 177 experienced Big 4 auditors. The experiment used a 2 (management vs inspector perspective) × 3 (absent vs reward vs penalty incentives) between-subjects design.
Findings
In the absence of incentives, adopting a management perspective raises situational skepticism when measuring skepticism as appropriateness of management’s fair value estimate while adopting an inspector perspective raises situational skepticism when measuring skepticism as need for more evidence. The authors find some evidence that incentives complement perspective-taking by enhancing those aspects of skepticism for which perspective-taking performs poorly. When assessing management assumptions, auditors adopting an inspector perspective enhance their skepticism more substantially than those adopting a management perspective, and this enhancement is greater with rewards than with penalties. However, this study does not detect an interaction between incentive type and perspective-taking on auditor skepticism in relation to gathering additional evidence.
Originality/value
This paper extends the literature by shifting the focus from a single perspective to a comparison of two perspective-taking approaches and discusses how each of these approaches enhances different aspects of skepticism. This paper also illustrates the importance of the interplay between perspective-taking and incentives in enhancing auditor skepticism.
Keywords
Acknowledgements
The authors would like to thank James Bierstaker (the editor), two anonymous reviewers, Noel Harding, Hun-Tong Tan, Ken Trotman, and participants at the University of Melbourne and Monash University for their helpful comments. The authors are grateful for the valuable assistance provided by Skye Zhu and Eka Tan. Special thanks to Jason Rasso for graciously sharing his experimental materials. We also thank the audit professionals who participated in the study. This research received funding from the CPA Australia: Global Research Perspectives Program.
Citation
Ho, S.Y., Phang, S.-Y. and Moroney, R. (2022), "The combined effect of perspective-taking and incentives on professional skepticism", Managerial Auditing Journal, Vol. 37 No. 1, pp. 129-150. https://doi.org/10.1108/MAJ-02-2021-3019
Publisher
:Emerald Publishing Limited
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