Why Auditors are Unable to See Their Own Behavior as Others Do: Understanding a Potential Blind Spot.

• In Event: Investigating Audit Procedures

Abstract

Audit firms spend significant resources developing programs intended to promote an ethical culture in which all individuals “understand and embrace a personal responsibility for doing the right thing in the right way for the capital markets” (KPMG 2016). However, situations continue to arise in which individual auditors engage in behaviors, such as ignoring inconsistent audit evidence, that are contrary to their firm’s values. To better understand why this may sometimes occur, I conduct an experiment that examines two factors—being directly involved in a dilemma (actor versus observer) and having an auditing background (being an auditor versus a non-auditor)—that are predicted to inhibit an auditor’s ability to recognize potential risks and ethical issues that may be obvious to others. I find that differences in individuals’ involvement in a dilemma and their auditing background influence perceptions of the likelihood that ignoring inconsistent evidence could lead to a negative outcome. Non-auditors perceive a higher likelihood of a negative outcome than do auditor observers, who perceive a higher likelihood than auditor actors. Ethicality judgments follow a similar pattern with non-auditors perceiving a decision to ignore inconsistent evidence as less ethical than do auditor observers, who view it as less ethical than auditor actors. Finally, I find that audit seniors do not seem to appreciate the “optics” of this situation. That is, auditors do not realize that differences in their involvement in a dilemma and in their auditing background may influence how they view a decision to ignore inconsistent evidence. I discuss implications of these findings for audit firm training and for auditors’ ability to objectively assess the costs and benefits of their behavior.

Author

• Michele Lynn Frank, Miami University