A Cross-National Investigation of Auditors’ Professional Skepticism: The Role of Informal Institutions

• In Event: Auditor Assessment of Risk & Professional Skepticism

Abstract

The marked interest of researchers, practitioners, and regulators in strengthening auditors’ professional skepticism has recently developed into an increased focus on safeguarding skepticism internationally, such as with “other auditors” in a global group audit. This is important because auditors working with other auditors from other jurisdictions face variations in professional skepticism due to differences in the local environment. In this study we use archival, proprietary data representing internal audit quality assessments of 1,152 individual audit engagements from 29 countries of a Big 4 audit firm to assess the impact of cross-national differences in informal institutions (i.e., the underlying traditions, customs, values, religious beliefs, and other unwritten and often implicit societal rules that guide behavior) on auditors’ professional skepticism. Largely consistent with our expectations, we find that professional skepticism is lower in countries that are more collectivistic and are characterized by higher levels of societal trust. As predicted, we also find a positive association between professional skepticism and religiosity. However, we do not find evidence that professional skepticism and power distance are negatively associated. An important implication of our findings is that, as we document that auditors are influenced by the informal institutions of the society they live in, if researchers, practitioners, and regulators are interested in effectively strengthening professional skepticism internationally, they need to take a country’s informal institutions into account, e.g., in training, knowledge sharing, or standard setting, and may want to consider different approaches for different regions in the world.

Authors

• Olof Bik, Nyenrode Business Universiteit

• Reggy Hooghiemstra, University of Groningen