Do Auditors Expect to be Rewarded for Inaction?

Abstract

We examine whether audit staff expect to receive higher performance evaluations for inaction than skeptical action. Inaction is efficient in the absence of a material misstatement, and staff may expect to be rewarded for efficiency-enhancing decisions. However, inaction can degrade audit quality by leaving material misstatements undetected. We focus on expected evaluations because they reflect a lens through which audit staff view their professional incentives. When a misstatement is absent (the most common outcome of skeptical action), we find that (1) audit staff expect inaction to be rewarded, but supervisors do not reward inaction and (2) audit staff expect skeptical action to be penalized, but supervisors instead reward skeptical action. Taken together, these results suggest that audit staff evaluation expectancies are miscalibrated in ways that supervisors likely view as undesirable.

Keywords: skepticism; skeptical action; inaction; performance evaluations