Recognition and Control of Professional Skepticism in Big 4 and Non-Big 4 Accounting Firms

• In Event: Individual-Level Traits and Their Effects

Abstract

This study examines the role of audit firms in valuing and controlling professional skepticism. We survey lead auditors and link their responses on professional skepticism to their compensation and reporting. We argue that professional skepticism is normatively desirable trait only in Big 4 audit firms so these firms value and also seek to control it. Our findings suggest that the level of professional skepticism is positively associated with auditors’ income in Big 4 audit firms while no such association is found for non-Big 4 auditors. This result provides an indication that when lead auditors’ skeptical values match the values of their audit firms, these individuals receives higher level of compensation. Furthermore, we observe that skepticism is associated with auditor’s reporting only in non-Big 4 auditors. In other words, due to normalization process inside Big 4 audit firms, audit partner’s ability to affect audit quality does not necessarily reflect her (his) skeptical trait.

Authors

• Amin Sofla, Umea University

• Tobias Svanstrom, Umea University