The Outcome Effect and Professional Skepticism: A Replication and an Attempt at Mitigation

Abstract

IIn this research note, we replicate Brazel et al.’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). However, when no misstatement is identified (negative outcome), evaluators penalize staff who exercise appropriate levels of skepticism. One factor causing this outcome effect may be that exercising skepticism typically causes budget overages due to additional testing. As such, our replication features an intervention: formally attributing the budget overage to skeptical judgments and actions in the audit budget file. However, we do not find that evidencing skepticism in the budget effectively mitigates the outcome effect identified by Brazel et al. (2016).

Keywords: audit, budget, evaluation, outcome effect, professional skepticism, replication

JEL Classification: M40, M41, M42