Kathryn Kadous

Grounding Measurement of Professional Skepticism in Mindset and Attitude Theory: A Way Forward

Professional skepticism is fundamental to audit quality, yet it is ill defined. Consequently, we first develop an attitude definition of professional skepticism, along with measures that can be used to infer the nature and strength of the auditors’ underlying professionally skeptical attitudes. Our measures include both skeptical judgments and skeptical actions, as advocated by Nelson (2009) and Hurtt, Brown-Liburd, Earley, and Krishnamoorthy (2013), along with an affective aspect, which is gaining attention in audit research (e.g., Bhattacharjee and Moreno 2013; Guenin-Paracini, Malsch, and Marche Paille 2014). We then place our attitude conceptualization of professional skepticism within our Auditors’ Judgment and Decision Making (JDM) Research Framework, which we developed to organize the auditor judgment literature, at large. Our framework allows researchers to identify what is and what is not a professional skepticism study, while also providing insights about the important relationships among auditors’ cognitive processes, their attitudes, and the extent to which those attitudes manifest in their judgments and decisions. Together, our attitude conceptualization of professional skepticism and our proposed framework for auditors’ JDM research facilitate the identification of root causes of audit deficiencies and facilitate the development of interventions to correct such deficiencies. Thus, we expect they will be valuable tools for researchers who wish to maximize the scholarly contribution of their future work.

Undue Influence? The Effect of Social Media Advice on Investment Decisions

Individual investors increasingly rely on investment advice from social media platforms. Even advice with little, if any, predictive value appears to influence investor decisions. Our study reports the results of two experiments that help explain why investors rely on such advice. We find that some investors rely on advice with low predictive value because they believe that the advice is informative. However, other investors who rely on the advice are unaware of its influence on their investment decisions. Specifically, we find that sentiment-only social media advice influences investment decisions even among investors who believe that the advice should not and does not affect their decisions. Further, we find that investors rely equally on advice that conveys only sentiment and advice that conveys information about firm fundamentals, despite these same investors indicating that they should and did rely more on fundamentals-related advice. Our research suggests that regulators’ approach of asking investors to evaluate the credibility of the source is inadequate. To avoid being influenced by low quality information, investors need to avoid it entirely.

How Does Intrinsic Motivation Improve Auditor Judgment in Complex Audit Tasks

Intrinsic motivation is generally thought to be positively associated with performance on a variety of tasks; however, there is only sparse experimental evidence supporting this idea and we know little about the specific mechanisms behind any effect. We develop theory about how auditors’ intrinsic motivation for their jobs can improve their judgments about complex accounting estimates. We experimentally test whether a prompt to make auditors’ intrinsic motivation for their jobs salient improves specific information processing behaviors necessary for high quality judgments in complex audit tasks. It does: prompted auditors attend to a broader set of information, process information at a deeper level, and request more relevant additional evidence. Supplemental analyses show that these processing behaviors mediate between salient intrinsic motivation and an improved ability to identify a biased complex estimate. We replicate these effects of salient intrinsic motivation using a trait measure of intrinsic motivational orientation as our independent variable. Our theory and analyses indicate that auditors’ intrinsic motivation for their work provides unique value for improving judgment quality, particularly in the context of performing complex audit tasks. Our study supports the view that high quality cognitive processing can improve auditors’ professional skepticism by providing a foundation for skeptical judgments.

Upward Communication of Audit Issues: The Effects of Issue Ambiguity and Intrinsic Motivation

Audit leaders are required to encourage upward communication of significant audit issues in order to ensure high audit quality. This paper reports four studies that examine how the ambiguity of a potential audit issue influences audit team members’ willingness to speak up about that issue and whether audit leadership that fosters auditors’ intrinsic motivation can improve willingness to speak up. Study 1 provides experimental evidence that auditors are more willing to speak up when an audit issue is less ambiguous than when it is more ambiguous. Study 2 replicates this finding and demonstrates that auditors are more likely to speak up to leaders who focus on intrinsic versus extrinsic motivators, regardless of the level of ambiguity surrounding the audit issue. Studies 3 and 4 corroborate that intrinsic motivation is the causal construct behind the Study 2 leadership result. Study 3 experimentally demonstrates that interns view intrinsically motivated auditors as more likely to report potential audit issues than extrinsically motivated auditors. Study 4 surveys auditors and non-auditing professionals about their workplace speaking up behaviors and finds that speaking up is positively associated with a trait measure of intrinsic motivation. Our paper demonstrates that audit leaders can increase auditors’ willingness to speak up, regardless of audit issue ambiguity, via leadership focused on intrinsic motivation and that intrinsic motivation, more generally, is positively associated with speaking up.Regulators require auditors to raise significant audit issues and concerns to the attention of audit engagement leadership and requires leadership to encourage such communication. This paper demonstrates, using an experiment and a survey, that audit team members’ willingness to speak up about such issues is associated with their intrinsic motivational orientation. Based on this result, we test whether audit leadership can leverage this relationship to increase speaking up, particularly when audit issues are more ambiguous, by emphasizing intrinsic goals. Results across three additional experiments indicate that auditors whose leaders emphasize intrinsic goals, whether directly or through tone at the top and firm culture, are more likely to speak up than are other auditors. We also find that auditors are more likely to speak up when an audit issue is less versus more ambiguous. We conclude that leadership can fulfill their obligation to encourage upward communication by emphasizing intrinsic versus extrinsic goals, regardless of the level of ambiguity surrounding the audit issue.