Auditor Professional Skepticism During Auditor-Client Interactions in a Nonprofit Environment: The Effects of Donor Pressure and the Strength of Governance

• In Event: Auditor-Client Interactions and Negotiations

Abstract

Auditors serve an important monitoring role in the nonprofit sector, yet little is known about how auditors’ skepticism incorporate factors unique to this sector during auditor-client interactions. We experimentally examine how auditors consider both donor pressure to increase relative program spending and the strength of nonprofit governance during client attempts to persuade auditors of the appropriateness of an increase in the program expense ratio. We hypothesize and find that, for the same increase in the program expense ratio, auditors are less persuaded and exhibit greater skepticism when donor pressure is high rather than low. However, there is a greater difference in auditor skepticism between the high and low donor pressure conditions when governance is strong rather than weak. Thus, stronger governance leads auditors to become more discerning about differing levels of donor pressure. These results provide insight into aspects of the nonprofit environment that impact professional skepticism during client interactions.

Authors

• John Robert Lauck, Louisiana Tech University

• Sudip Bhattacharjee, Virginia Tech University