The Role of Tacit Knowledge in Auditor Expertise and Human Capital Development

• In Event: Auditor Interactions

Abstract

Prior audit research predicts and finds that tacit managerial knowledge is associated with better annual performance evaluations, but only for relatively experienced auditors (Tan and Libby 1997). Extending the auditor tacit knowledge literature, we predict and find that tacit managerial knowledge helps experienced auditors better supervise their subordinates and that, in today’s audit ecology, relatively inexperienced auditors with growing tacit knowledge have better performance evaluations and earn higher compensation. Regarding the former, we specifically find that supervisors with higher tacit managerial knowledge better develop this knowledge in their subordinates, give greater relative weight to tacit managerial knowledge than to technical knowledge when evaluating subordinates’ annual performance, and strengthen the firm commitment of higher tacit knowledge subordinates to the firm. Regarding the latter, we find that audit firms value and reward both tacit managerial knowledge and tacit audit quality knowledge in relatively inexperienced auditors via career opportunities and bonus compensation. Overall, our theory and findings indicate that tacit managerial knowledge helps experienced auditors be better supervisors and that tacit knowledge is valued by firms, even in inexperienced auditors.

Authors

• Jasmijn Bol, Tulane University

• Cassandra Ruth Estep, University of Illinois-Urbana-Champaign

• Frank Moers, Maastricht University

• Mark Peecher, University of Illinois-Urbana-Champaign