Reexamining the Outcome Effect: Do Performance Evaluations Discourage Auditors’ Professional Skepticism?

45 Pages Posted: 9 Jul 2020 Last revised: 11 Feb 2021

See all articles by Mary E Marshall

Mary E Marshall

Louisiana Tech University - School of Accounting & Information Systems

Curtis Mullis

Georgia State University

K. Kelli Saunders

University of Nebraska at Lincoln - School of Accountancy

Chad M. Stefaniak

University of South Carolina

Date Written: February 10, 2021

Abstract

Prior research has documented an outcome effect such that appropriately skeptical auditors
receive higher performance evaluations when they identify a misstatement than when they do
not. In Experiment 1, we find differences in performance evaluations (as identified in prior
research and that we empirically confirm) are driven by a positive reaction to auditors who
identify a misstatement rather than a negative reaction to auditors who do not. In Experiment 2,
we use the evaluation fact pattern from Experiment 1 and find outcome effects do not
differentially impact auditors’ subsequent professional skepticism, so long as the auditor is aware
of their initial task performance evaluation. Taken together, results from our experiments
contradict the consensus inference in prior research that the audit evaluation system inadvertently
disincentivizes profession skepticism. Rather, our results suggest the evaluation system not only
does not deter professional skepticism, but also is critical in facilitating auditors’ professional
skepticism.

Keywords: professional skepticism, outcome effects, auditor review process

JEL Classification: M42, M41

Suggested Citation

Marshall, Mary and Mullis, Curtis and Saunders, K. Kelli and Stefaniak, Chad M., Reexamining the Outcome Effect: Do Performance Evaluations Discourage Auditors’ Professional Skepticism? (February 10, 2021). Available at SSRN: https://ssrn.com/abstract=3627646 or http://dx.doi.org/10.2139/ssrn.3627646

Mary Marshall

Louisiana Tech University - School of Accounting & Information Systems ( email )

P. O. Box 10318
Ruston, LA 71272
United States

Curtis Mullis

Georgia State University ( email )

GA
United States

K. Kelli Saunders (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Chad M. Stefaniak

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States

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