The outcome effect and professional skepticism

Abstract

Despite the importance placed on professional skepticism by the accounting profession and regulators, the failure of auditors to exercise an appropriate level of skepticism continues to be a global issue. This article summarizes a recent study by Brazel, Jackson, Schaefer, and Stewart (2016) that examines a potential barrier to skepticism: That outcome knowledge biases supervisors’ evaluations of skeptical behavior. Holding a staff member’s skeptical judgments and acts constant, Brazel et al. (2016) find that superiors on engagement teams evaluate the staff’s skeptical behavior based on whether the staff’s investigation of an issue ultimately identifies a misstatement. The evidence suggests that evaluators penalize auditors who employ an appropriate level of skepticism, but do not identify a misstatement. Collectively, Brazel et al. (2016) depict an evaluation system that may inadvertently discourage skepticism amongst auditors in the field.