This study explores two potential safeguards against liability when auditors exercise professional skepticism, but do not detect a fraud: (1) a firm policy requiring a specific level of professional skepticism in high-risk audit areas and (2) providing jurors with key differences between the...

We investigate if varying rates of false positives impact auditor skepticism toward red flags identified by data analytic tools. We also examine the extent to which consistent rewards for skepticism can improve the application of skepticism on audits employing data analytics. Using an experiment...

Using publicly available data from annual reports, we find that SEC rule changes (33-8128 and 33-8644) that impose time pressure on the audits of registered firms have a negative impact on earnings quality, which we interpret as evidence of lower audit quality. Consistent with our predictions,...

Providing auditors with credible incentives to exercise professional skepticism is a longstanding problem. We focus on costly skepticism: the common situation in which skepticism is ex ante appropriate based on available evidence, but generates incremental ex post costs and does not identify a...

In this research note, we replicate Brazel, Jackson, Schaefer, and Stewart's (2016) study of how auditors evaluate skeptical behavior. Like the original study, we find that evaluators reward audit staff who exercise appropriate levels of skepticism and identify a misstatement (positive outcome)....

Fraud detection is among the highest priorities for the accounting profession, standard setters, regulators, and stakeholders in the financial reporting process. During planning, auditors are required to perform preliminary analytical procedures with the objective of identifying unusual or...

Using publicly available data from annual reports, we find that SEC rule changes (33-8128 and 33-8644) that impose time pressure on the audits of registered firms have a negative impact on earnings quality, which we interpret as evidence of lower audit quality. Consistent with our predictions,...

Global stakeholders have expressed interest in increasing the use of data analytics throughout the audit process. While data analytics offer great promise in identifying audit-relevant information, auditors may not uniformly incorporate this information into their decision making. This article...

The financial statement auditor’s identification of fraud risk factors, their assessment of fraud risk, and their fraud risk responses are key to the auditor’s consideration of fraud and fraud detection. Given that the last review of research related to the fraud audit process occurred...

We explore how audit committees (ACs) support audit engagement teams and whether AC support can improve auditors’ professional skepticism. We first survey audit practitioners and find that AC support is multidimensional, varies between engagements, and often is not communicated to the entire...