Professional Scepticism of Auditors: A Cross-Cultural Experiment

 In light of the growth in multinational business operations and the greater use of international sources of finance, there has been a global trend to increased uniformity in accounting and auditing standards. The research suggests that uniformity in auditing also requires uniformity in the application of those standards. One study attempts to determine whether there are differences in the application of auditing standards due to the influence of cultural differences on decision-making by auditors. In this regard, the study examines the effect of culture, the risk of fraud and errors, and accountability on auditors’ professional scepticism, which is necessary to assess the risk of material misstatements.

Data from a sample of auditors from the Big 4 audit firms in Egypt and Australia were collected. The subjects evaluated the risk of fraud and error at the planning stage. The findings provide evidence as to whether auditors from different cultural backgrounds react differently to audit evidence. The results show that there are significant differences between the two countries with respect to some audit decisions.

This paper makes an original contribution to the literature by providing evidence about whether auditor judgments, decisions and professional scepticism are consistent across cultures. The findings indicate that the exercise of professional judgment differs between cultures. Therefore, the researchers recommend that international auditing standards should consider these differences.

For more information, read the research paper (and the related Doctoral Thesis), Professional Scepticism of Auditors: A Cross-Cultural Experiment by Medhat Endrawes, Department of Accounting and Corporate Governance, Macquarie University and Gary S. Monroe, School of Accounting, University of New South Wales.

Ethical Leadership: Every Leader Sets a Tone

A recent National Business Ethics Survey (NBES) set out to learn what’s required for successful ethical leadership, what leaders can do to set an ethical tone at the top and how they can inspire employees to do the right thing. It explores the relationship between management behaviours and employee conduct.

According to the Ethical Leadership Survey: Executive Summary, one notable finding is that the most significant factor in ethical leadership is employees’ perception of their leaders’ personal character. Leaders who demonstrate they are ethical people with strong character have a much greater impact on worker behaviour than deliberate and visible efforts to promote ethics. Another finding is that the tone at the top doesn’t just come from the C-suite. With regard to modeling good behaviour, keeping promises or upholding company standards, direct supervisors may matter just as much or more than CEOs and other senior executives.

Finally, ethical leadership is increasingly a round-the-clock job. When it comes to ethics, everything a leader does sets a tone. In a world where old distinctions between public and private are increasingly blurred, leaders’ private behaviour can matter just as much as what they do at work. When leaders practice 24-7 integrity, workers’ own commitment to ethical conduct tends to be stronger. In matters of ethics, leaders are always setting a tone.

The National Business Ethics Survey generates the benchmark on ethical behaviour in corporations in the United States. The findings represent the views of the American workforce in the private sector. Since 1994, the NBES and its supplemental reports have provided business leaders a snapshot of trends in workplace ethics and an identification of the drivers that improve ethical workforce behaviour. With every report, the Ethics Resource Center (ERC) researchers analyze current and emerging issues, produce new ideas and benchmarks that matter for the public trust, and identify the strategies that business leaders can adopt to strengthen ethics cultures.

(Learn more about ethical behaviour and its role in the exercise of  professional judgment.)