The effects of satisfaction with a client's management during a prior audit engagement, trust, and moral reasoning on auditors' perceived risk of management fraud
David Bourget (Western Ontario)
David Chalmers (ANU, NYU)
Rafael De Clercq
Ezio Di Nucci
Jack Alan Reynolds
Learn more about PhilPapers
Journal of Business Ethics 85 (2):109-136 (2009)
The recent accounting scandals have raised concerns regarding the closeness of auditor–client relationships. Critics argue that as the relationship lengthens a bond develops and auditors’ professional skepticism may be replaced with trust. However, Statement on Auditing Standards No. 99 states that auditors “should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the auditor’s belief about management’s honesty and integrity” (AICPA 2002, Statement on Auditing Standards No. 99, paragraph 13, p. 10). The purpose of this study is to investigate whether auditors develop trust in a client’s management and whether this trust affects auditors’ decisions. Specifically, this study examines whether auditors’ satisfaction with a client’s management during a prior audit engagement affects auditors’ self-reported trust in that client’s management and whether that trust affects their fraud risk assessment. The decision to trust a client’s management should be an ethical decision because excessive trust may impair auditors’ skepticism, which auditors are required to maintain by their professional responsibilities. We therefore also investigate whether auditors’ trust is affected by their moral reasoning. An experimental case was completed by 89 professional auditors, all with experience assessing the risk of fraud. The results suggest auditors’ satisfaction with the client affects their trust in the client (higher satisfaction associated with higher trust and lower satisfaction associated with lower trust). Further, after an overall unsatisfying experience, auditors’ trust affects their fraud risk assessments. However, after an overall satisfying experience, their trust does not affect their fraud risk assessments. The results indicate auditors are able to maintain their professional skepticism after satisfying past experiences with the client regardless of their beliefs about the honesty and trustworthiness of the client’s management. Lastly, auditors’ moral reasoning was not related to their trust in the client’s management.
|Keywords||Philosophy Quality of Life Research Management/Business for Professionals Economic Growth Ethics|
|Categories||categorize this paper)|
Setup an account with your affiliations in order to access resources via your University's proxy server
Configure custom proxy (use this if your affiliation does not provide a proxy)
|Through your library|
References found in this work BETA
No references found.
Citations of this work BETA
Helen L. Brown-Liburd, Jeffrey Cohen & Greg Trompeter (2013). Effects of Earnings Forecasts and Heightened Professional Skepticism on the Outcomes of Client–Auditor Negotiation. Journal of Business Ethics 116 (2):311-325.
Similar books and articles
William E. Shafer, Alice A. Ketchand & Roselyn E. Morris (2004). Auditors' Willingness to Advocate Client-Preferred Accounting Principles. Journal of Business Ethics 52 (3):213-227.
Anna M. Rose & Jacob M. Rose (2008). Management Attempts to Avoid Accounting Disclosure Oversight: The Effects of Trust and Knowledge on Corporate Directors' Governance Ability. [REVIEW] Journal of Business Ethics 83 (2):193 - 205.
Abdul Majid, Ferdinand A. Gul & Judy S. L. Tsui (2001). An Analysis of Hong Kong Auditors' Perceptions of the Importance of Selected Red Flag Factors in Risk Assessment. Journal of Business Ethics 32 (3):263 - 274.
Semra Karacaer, Raheel Gohar, Mehmet Aygün & Cem Sayin (2009). Effects of Personal Values on Auditor's Ethical Decisions: A Comparison of Pakistani and Turkish Professional Auditors. [REVIEW] Journal of Business Ethics 88 (1):53 - 64.
Ferdinand A. Gul, Andy Y. Ng & Marian Yew Jen Wu Tong (2003). Chinese Auditors' Ethical Behavior in an Audit Conflict Situation. Journal of Business Ethics 42 (4):379 - 392.
Waymond Rodgers, Andrés Guiral & José A. Gonzalo (2009). Different Pathways That Suggest Whether Auditors' Going Concern Opinions Are Ethically Based. Journal of Business Ethics 86 (3):347 - 361.
Bent Warming-Rasmussen & Carolyn A. Windsor (2003). Danish Evidence of Auditors' Level of Moral Reasoning and Predisposition to Provide Fair Judgements. Journal of Business Ethics 47 (2):77 - 87.
Michael Firth, Phyllis L. L. Mo & Raymond M. K. Wong (2005). Financial Statement Frauds and Auditor Sanctions: An Analysis of Enforcement Actions in China. [REVIEW] Journal of Business Ethics 62 (4):367 - 381.
Michael A. Pearson (1985). Enhancing Perceptions of Auditor Independence. Journal of Business Ethics 4 (1):53 - 56.
Cynthia Jeffrey, William Dilla & Nancy Weatherholt (2004). The Impact of Ethical Development and Cultural Constructs on Auditor Judgments. Business Ethics Quarterly 14 (3):553-579.
Added to index2009-01-28
Total downloads12 ( #286,939 of 1,796,243 )
Recent downloads (6 months)1 ( #468,795 of 1,796,243 )
How can I increase my downloads?