What shapes your professional judgement?

Christine Nangle and Bríd Murphy explore how pre-audit training factors influence professional scepticism, uncovering insights into recruitment, education and decision-making that could enhance audit quality and address persistent challenges in the auditing profession

The importance of professional scepticism (PS) gained prominence at the close of the last century. The failure of major companies and financial scandals highlighted the need for auditors to adopt a more questioning and sceptical approach to their work. 

Despite numerous academic studies and a heightened focus on this issue in the profession, failure to exhibit PS is still the most cited reason for sanctions imposed on audit firms. 

This constant challenge underscores the critical need to foster a culture of scepticism among auditors to enhance audit quality and mitigate the risk of failures. The Brydon Report (2019) assigns blame to the practice of ‘rules-following’ which has blunted scepticism as well as the application of judgement, and calls for improved auditor education to foster the development of PS.  

PS includes both an innate ability (trait scepticism) and a temporary mindset influenced by situational factors (state scepticism). Many studies have looked into how PS develops, but there are conflicting findings about what increases PS levels. 

With the International Auditing and Assurance Standards Board driving strategic focus on PS through its Professional Scepticism Consultation Group and standards development, the profession must better understand the factors contributing to PS development to ensure accountants and auditors are appropriately skilled to meet evolving requirements and expectations.

This study looks at how factors in pre-audit training contracts influence PS. By investigating these pre-audit factors, the study aims to provide information that can improve recruitment practices and audit quality. Understanding what fosters PS in graduates could lead to enhanced training and development initiatives, ensuring new auditors develop the critical thinking and questioning mindset essential for effective auditing in today's complex financial landscape.

This study was made possible by the cooperation of accounting firms and their newly hired trainees. It forms part of a broader PhD study in Dublin City University (DCU) which aims to re-measure the levels of PS in the same participants as they approach the completion of their training contracts.

A range of firms, from large to medium-sized professional practices, helped collect 332 surveys from participants. Most participants began their training contracts one to three months before completing the survey, allowing the research findings to be connected to factors before their professional training.

Influences

The survey revealed no significant difference in PS levels between male and female participants. However, it found that participants aged 26+ demonstrated greater PS levels. 

Of the 332 participants, 26 percent had undertaken postgraduate studies, and results indicate postgraduate education is positively linked to increased PS levels. And while 73 percent of participants in this study had engaged in ethics education prior to their training contract, this study found no relationship between ethics education and PS levels. 

Professional scepticism vs judgement 

PS influences decision-making processes and judgements. Higher levels of PS should improve critical evaluation, enhance objectivity and mitigate cognitive biases that may cloud judgment, improving risk assessment and overall audit quality. 

This study used scenarios to assess how PS levels affect initial judgements about fraud and errors based on different client experiences –  neutral, positive and negative. Participants were presented with three scenarios, containing details of the same material misstatement. The first scenario involved a neutral client experience, the second indicated a positive experience, and the third showed a negative experience. Participants answered questions after each scenario, about their perceptions of fraud, risk and client trustworthiness.

Participants with higher levels of PS made more prudent judgments in all three scenarios. However, this effect was stronger in the positive and neutral scenarios, suggesting individuals with higher levels of scepticism are less likely to change their judgments based on different client experiences. 

The study also highlighted concepts from ancient philosophy, specifically Pyrrhonian scepticism, which encourages refraining from making judgments and suspending belief, which can result in indecision or inaction. 

Philosopher Sextus Empiricus warned that being too sceptical could trap people in doubt and hinder decision-making. To allow for analysis of this phenomenon, the survey allowed participants to skip questions instead of forcing them to answer. 

Interestingly, the findings show those who skipped four or more judgments had significantly higher PS scores than those who skipped fewer. This suggests an optimal level of scepticism where too little leads to poor judgment, while too much can impede one's decision-making capacity.

These initial findings provide some insights regarding potential recruitment screening criteria. It is hoped that the broader study will offer further insights regarding the development of PS during trainee contracts. A greater understanding of PS development at this important stage in the career of an auditor will help to ensure audit trainees’ development aligns with regulatory priorities to improve public trust and mitigate sanctions in the audit profession.

Christine Nangle is Head of Discipline of Accounting at TU Dublin

Bríd Murphy is Associate Professor at DCU