Who Rewards Appropriate Levels of Professional Skepticism?

Joseph F. Brazel (jfbrazel@ncsu.edu), Justin Leiby (jleiby2@illinois.edu) and Tammie J. Schaefer (schaefertj@umkc.edu)
Additional contact information
Joseph F. Brazel: North Carolina State University
Justin Leiby: University of Illinois
Tammie J. Schaefer: University of Missouri

Journal of Business Ethics, 2025, vol. 196, issue 2, No 10, 439-450

Abstract: Abstract The audit profession’s technical and ethical standards require the application of professional skepticism throughout the financial statement audit process, as auditor skepticism is essential for detecting financial statement fraud and protecting the investing public. However, recent research suggests that audit supervisors often punish staff for exercising skepticism, presenting auditors with an ethical conflict between acting in their own self-interest and acting in a way that improves audit quality and protects the public. This research also suggests that supervisors who reward appropriate skeptical behavior, regardless of the outcome, appear to develop staff that are more likely to detect and convey fraud red flags to their superiors. Building on this research, we use a case-based survey to identify the characteristics of audit supervisors (audit seniors and managers) who are more likely to reward appropriate skepticism, even if it ultimately does not identify a misstatement. We find that trait skepticism, especially suspending one’s judgment, positively drives the evaluations of professional skepticism in our setting. Also, we observe that when supervisors believe that their own audit partner will view the skepticism favorably, they “pay it forward” by rewarding their own staff who engage in skepticism. Our findings identify the characteristics that audit firms may want to develop and foster in auditors rising to supervisory levels.

Keywords: Ethical dilemma; Fraud red flag; Incentives; Performance evaluation; Professional skepticism; Rewards (search for similar items in EconPapers)
JEL-codes: M40 M41 M42 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10551-024-05732-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:196:y:2025:i:2:d:10.1007_s10551-024-05732-w

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-024-05732-w

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla (sonal.shukla@springer.com) and Springer Nature Abstracting and Indexing (indexing@springernature.com).