Walking the Talk? Managing Errors in the Audit Profession

Abstract

Errors reflect unintended deviations from plans or goals, and commonly carry negative connotations. While errors cannot be eliminated, they offer opportunities for learning and innovation. Audit firms employ powerful mechanisms, such as detailed audit manuals and review processes, to prevent or detect audit errors and safeguard their work in the public interest. At the same time, the profession recognizes potentially positive long-term outcomes of errors in terms of continuous learning to enhance auditor skills and, ultimately, audit quality. The current study employs semi-structured interviews with Dutch auditors to investigate how they manage the tensions emanating from perceiving audit errors as a threat to their public-interest work while embracing such incidents as opportunities for learning. Our findings reveal that auditors express an open attitude towards learning from audit errors, but, in substance, they espouse negative emotions and defensive strategies for fear of repercussions. We show that the excessive emphasis audit firms and regulatory oversight bodies place on error prevention conditions auditors into perceiving errors as negative and avoidable events. We argue these attitudes result from the profession’s efforts to maintain status and legitimacy, where any auditor error may elicit regulatory scrutiny and concomitantly shed doubt on auditors’ work in the public interest.

Keywords: error management; learning from errors; legitimacy; psychodynamics of work; audit profession

JEL Classification: M14, M42, M44