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The Public Company Accounting Oversight Board (PCAOB) documents questionable internal control judgments in recent audit inspection reports, noting that some auditors may not be capable of such judgments. We address this problem by analyzing which innate auditor characteristics lead to higher quality internal control judgments. We base our analyses on a sample of 123 senior auditors. For experienced seniors, we find that high cognitive reflection ability and greater use of a rational/logical thinking style lead to recognition of a deficient internal control system. However, we do not observe experienced seniors’ general intelligence or personality traits influencing recognition of a deficient internal control system. For less-experienced seniors, we find that only personality traits lead to recognition of a deficient internal control system. From a practical standpoint, we identify measures that firms can use in hiring, promotion, and evaluation/mentoring. Theoretically, we inform the nature of auditor characteristics that influence internal control judgments. We also identify a process of judgment maturation in senior auditors who initially do not differentiate themselves with their cognitive ability.
Christopher J. Wolfe, Texas A&M University
Brian Fitzgerald, Northeastern University
Ryan D. Zimmerman, Virginia Polytechnic Institute and State University