Enhancing Auditors’ Reliance on Data Analytics under Inspection Risk Using Fixed and Growth Mindsets

55 Pages Posted: 24 May 2021 Last revised: 23 Jun 2021

See all articles by Tongrui Cao

Tongrui Cao

Zhejiang University - School of Business Administration

Rong-Ruey Duh

National Taiwan University - Department of Accounting

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Tu Xu

Renmin University of China - School of Business; University of Hawaii at Manoa - Shidler College of Business

Date Written: June 23, 2021

Abstract

Audit firms have invested significantly in data analytics (DA). However, evidence shows that auditors are often reluctant to rely on DA. A major auditor concern is that inspectors will second-guess the audit evidence gathered using DA. Drawing on psychology research, we examine how the effect of inspection risk on auditors’ reliance on DA is moderated by a fixed mindset (a belief that one’s ability is fixed) versus a growth mindset (a belief that one’s ability is malleable). In an experiment with Big Four auditors as participants, we find that, relative to low inspection risk, high inspection risk reduces auditors’ reliance on DA when auditors are prompted with a fixed mindset, but increases it when auditors are prompted with a growth mindset. Our findings contribute to auditing literature on DA, inspection risk, and mindsets, and have implications for auditors, audit firms, and regulators.

Keywords: data analytics; inspection risk; mindsets; auditor judgment

Suggested Citation

Cao, Tongrui and Duh, Rong-Ruey and Tan, Hun-Tong and Xu, Tu, Enhancing Auditors’ Reliance on Data Analytics under Inspection Risk Using Fixed and Growth Mindsets (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3850527 or http://dx.doi.org/10.2139/ssrn.3850527

Tongrui Cao

Zhejiang University - School of Business Administration ( email )

Hangzhou 310027
China

Rong-Ruey Duh

National Taiwan University - Department of Accounting ( email )

50 Lane 144, Section 4
Taipei 32026
Taiwan

Hun-Tong Tan (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

Tu Xu

Renmin University of China - School of Business ( email )

Beijing
China

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

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