A Matter of Perspective: Mitigating Outcome Bias in Auditor Performance Evaluations

• In Event: Auditor Judgment I

Abstract

We experimentally demonstrate that perspective-taking improves the performance evaluation process by significantly reducing the influence of outcome bias. In a common audit setting in which a staff auditor exhibits appropriate skeptical behavior but ultimately does not identify a material misstatement, supervising auditors prompted to take the perspective of the staff auditor prior to conducting a performance review evaluate the staff’s performance higher than auditors not prompted to consider the perspective of the staff auditor. More importantly, we find that perspective-taking equalizes supervising auditors’ propensity to appropriately rate staff performance as “above expectations” when proper skepticism is exhibited, regardless of the audit outcome (positive or negative) resulting from the skeptical behavior. We provide confirming evidence that perspective-taking improves the performance evaluation process by changing the way that supervising auditors approach and conduct the evaluation. By prompting supervising auditors to “put themselves in the shoes of the subordinate auditor” when evaluating staff performance, supervisors are more likely empathize with their staff and reward the appropriate use of professional skepticism in a context that multiple prior studies have found to be overwhelmed by outcome bias and inappropriate punishment of staff auditors properly exercising professional skepticism.

Authors

• Owen Brown, Baylor University

• Melanie I Millar, Baylor University