Empowering Auditors to Pursue Fraud During Evidence Evaluation

Abstract

Auditors struggle to respond skeptically to fraud, reducing audit quality. This problem is particularly prevalent during the evidence evaluation phase of the audit, when auditors face the greatest time constraints. Empowerment theory suggests that employees with autonomy to navigate the course of their own work can overcome constraints and produce higher quality work. We predict and find that empowered auditors better respond to unanticipated evidence suggestive of fraud encountered during evidence evaluation, and these auditors do not work inefficiently in the absence of such evidence. Further, we find support for our theorized judgment process in which auditors who feel more empowered assess fraud risk higher, leading them to indicate a greater need for more work and, ultimately, to recommend more effective audit procedures. We examine two theory-driven interventions and find that supervisor support effectively engenders feelings of empowerment but a charge code designed to allow autonomy for executing unplanned audit procedures does not. This study contributes to accounting research and practice by identifying a mechanism to improve auditors’ skeptical behavior.

Keywords: audit quality; budget pressure; empowerment; fraud; professional skepticism; time constraints.