Professional skepticism through audit praxis: An Aristotelian perspective

• Published date: 01 April 2022
• Author: Nonna Martinov‐Bennie,Maria Cadiz Dyball,Dale Tweedie
• Date: 01 April 2022
• DOI: http://doi.org/10.1111/ijau.12258

ORIGINAL ARTICLE

Professional skepticism through audit praxis: An Aristotelian

perspective

Nonna Martinov-Bennie

1,2

| Maria Cadiz Dyball

3

| Dale Tweedie

1

1

Department of Accounting and Corporate

Governance, Macquarie Business School,

Macquarie University, Sydney, New South

Wales, Australia

2

Department of Financial Governance,

University of South Africa, Pretoria,

South Africa

3

Discipline of Accounting, The University of

Sydney Business School, The University of

Sydney, Sydney, New South Wales, Australia

Correspondence

Maria Cadiz Dyball, Discipline of Accounting,

The University of Sydney Business School, The

University of Sydney, Sydney, New South

Wales, Australia.

Email: maria.dyball@sydney.edu.au

Funding information

Chartered Accountants Australia and

New Zealand (CAANZ), Grant/Award Number:

2014 Research Grant

While professional skepticism (PS) is a critical element of audit practice, academic

and professional discourse offers unclear and sometimes competing narratives of

how to maintain or improve it. This study provides a holistic account of how PS

develops by interpreting interviews of 21 highly experienced auditors. Using a theo-

retical framework from Aristotle and Alasdair MacIntyre, PS is interpreted as a char-

acter virtue of skepticism guided by the intellectual virtue of phr

on

esis. PS is

developed through two distinct stages of auditors' careers: (i) the pre-professional

phase, in which an auditor acquires characteristics amenable to developing PS; and

(ii) the professional praxis phase, in which PS is inculcated through a combination of

formal and on-the-job instruction and audit experience. This approach to how PS is

developed suggests that audit firms could focus more explicitly on recruiting novice

auditors whose pre-professional characteristics make them receptive to acquiring PS,

and on blended learning, with formal and on-the job instruction and habituation

through audit experience.

KEYWORDS

Aristotle, audit engagement, intellectual and character virtues, MacIntyre, on-the-job learning,

professional skepticism

1|INTRODUCTION

Numerous recent audit failures have been attributed to lack of profes-

sional skepticism (Hoos et al., 2019). Both academics and profes-

sionals acknowledge professional skepticism (hereafter PS) as an

essential element of audit practice (Brown-Liburd et al., 2013). PS is

mandated in the audit of financial statements (Carpenter &

Reimers, 2013; Hurtt, 2010; Popova, 2013) and considered a primary

driver of audit quality (Brown-Liburd et al., 2013; Francis, 2011;

Hurtt, 2010; Kadous, 2000; Nelson, 2009). Regulators refer to audi-

tors' lack of PS when making significant judgments about audit evi-

dence (e.g., use of experts, journal entry and internal control testing),

accounting estimates (e.g., fair value measurement) and accounting

treatments (e.g., revenue recognition) (Australian Securities & Invest-

ment Commission (ASIC), 2017; Carmichael & Craig, 1996; Interna-

tional Forum of Independent Audit Regulators (IFIAR), 2017; Public

Company Accounting Oversight Board (PCAOB), 2010a, 2010b,

2010c). Given its link to audit quality, there have been repeated calls

to discuss ways to improve PS in auditors (Doty, 2011, 2012;

Franzel, 2012). However, there is much to learn about PS in individual

auditors and audit communities (Francis, 2011). Crucially, for this

study, researchers have called for additional studies into whether

training or experience can influence PS (Hurtt et al., 2013).

Building on accounting research that interprets PS as a virtue

(Libby & Thorne, 2007), this paper aims to examine whether and how

PS develops by interviewing 21 experienced audit practitioners and

interpreting their perceptions of PS using a theoretical framework

from Aristotle and Alasdair Macintyre. The study has three research

questions. First, how do auditors conceptualise PS—in what respects

do they perceive PS to be an individual auditor character trait

(Hurtt, 2010) relative to a process (Nelson, 2009)? Second, how do

auditors perceive PS—in what respects do they believe it is stable

compared to being cultivated? Prior literature describes PS as both a

trait and a process, and as both stable and malleable, yet no over-

arching narrative distinguishes when and why PS follows each pattern.

Third, our primary research question is: How do auditors perceive PS

Received: 11 August 2021 Revised: 29 November 2021 Accepted: 15 December 2021

DOI: 10.1111/ijau.12258

Int J Audit. 2022;26:193–211. wileyonlinelibrary.com/journal/ijau ©2022 John Wiley & Sons Ltd 193

as being developed? Our analysis extends accounting literature that

presumes audits are complex group-learning processes (Dirsmith &

Covaleski, 1985; Humphrey & Moizer, 1990). By clarifying what PS is

and how it may be developed, the paper not only provides a way to

resolve tensions in prior research, but also offers an integrated analy-

sis of the processes firms use, or could use, to train and develop PS in

their auditors.

The study's theoretical framework begins from Aristotle's (1976)

virtue ethics, which we extend to audit contexts using

MacIntyre's (1984) neo-Aristotelianism. Prior accounting studies have

applied these frameworks to, inter alia, declare accounting a virtuous

practice (Francis, 1990; West, 2017), propose solutions to ethical

dilemmas that confront modern accounting practice (Lehman, 2014)

and inform business ethics education (Mintz, 1996, 2006). This study

extends these literatures by using the Aristotelian framework to inter-

pret how senior audit practitioners perceive PS and its development.

The study makes three main contributions. First, the paper's holis-

tic conceptualization of PS can resolve tensions in prior literature

between interpreting PS as either a trait (Hurtt, 2010) or a product of

auditor judgement revealed by skeptical behaviour (Nelson, 2009).

The study extends prior accounting research that views accounting

and/or audit as a ‘virtuous’practice (e.g., Francis, 1990; Libby &

Thorne, 2007; West, 2016, 2017), by conceptualizing PS as a type of

virtue or ‘excellence’that requires both character trait and judge-

ment. Second, the empirical insights of the 21 experienced auditors

extend prior accounting research using Aristotle (e.g., Francis, 1990;

Lehman, 2014; Libby & Thorne, 2007) by elucidating how ‘virtues’

develop in audit contexts. We find PS combines instruction (intellec-

tual virtue) and repeated action that habituates PS into a stable dispo-

sition (character virtue). Third, analysing how PS develops through

MacIntyre's ‘communities of practice’extends the team-based pro-

cess perspectives advanced by scholars such as Anderson-Gough

et al. (2000, 2001), Dirsmith and Covaleski (1985), Fogarty (1992),

Grey (1998) and Power (2003).

The remainder of the paper has five sections. Section 2 reviews

prior literature on PS and the communal nature of audit practice to

propose the paper's research questions. Section 3 develops the theo-

retical framework and Section 4 presents the research method.

Section 5 interprets the study's interview data. Section 6 concludes

and identifies the study's limitations and areas for further research.

2|PROFESSIONAL SKEPTICISM

2.1 |Introduction

Nelson (2009) and Hurtt et al. (2013) provide comprehensive reviews

of academic audit research on PS, and each also provides a PS model.

Nelson's model has two main components: (1) skeptical judgement

(i.e., an auditor recognizes that a potential issue may exist); and

(2) skeptical action (i.e., an auditor changes behaviour based on skepti-

cal judgement), with skeptical judgement a ‘primary driver’of skepti-

cal action (Nelson, 2009). The model describes how evidential input

combines with an auditor's traits, knowledge, incentives, audit experi-

ence and training to produce skeptical judgement, action and outputs.

Hurtt et al.'s (2013) model expands on Nelson by introducing four

broad categories of antecedents of PS judgement and action: (1) audi-

tor (including traits); (2) evidential; (3) client; and (4) external environ-

ment characteristics with each category incorporating an extensive

list of determinants. However, while standard-setters, regulators

(e.g., Public Company Accounting Oversight Board (PCAOB), 2008)

and academic researchers (e.g., Cohen et al., 2017; Nelson, 2009;

Quadackers et al., 2014) agree PS is essential in audits, PS remains dif-

ficult to define and measure (Hurtt et al., 2013; International Auditing

and Assurance Standards Board (IAASB), 2015; Olsen & Gold, 2018).

This section summarizes PS audit literature most relevant to this

study. Section 2.2 outlines how academic literature and professional

standards define PS. Section 2.3 reviews research into whether or not

PS is relatively stable over time and Section 2.4 discusses how firms

can cultivate PS through audit practice.

2.2 |Professional skepticism definitions

Many researchers define PS as an individual characteristic or person-

ality trait (e.g., Shaub, 1996; Shaub & Lawrence, 1996). Hurtt (2010,

p. 151) defines PS as ‘a multi-dimensional construct that characterizes

the propensity of an individual to defer concluding until evidence pro-

vides sufficient support for one alternative/explanation over others’.

The two most used PS trait measures in auditing studies are the Hurtt

Professional Skepticism Scale (HPSS; Hurtt, 2010) and the Rotter

Interpersonal Trust Scale (RIT; Rotter, 1967).

1

Studies utilizing these

scales generally demonstrate that auditors with a higher level of PS

(as measured by the HPSS) or lower level of trust (as measured by, for

example, the RIT) tend to exhibit more skeptical judgments (Hurtt

et al., 2013). Janssen et al.'s (2020) study similarly finds that individual

auditor differences are associated with differential PS trait levels

which are positively associated with effect of attitudes, subjective

norms and perceived behavioural control on auditors' skeptical inten-

tion and action. Recent multi-regression analysis (Khan &

Oczkowski, 2021) across mainly experimental PS studies indicates a

relatively weak positive relationship between PS trait (measured by

HPSS) and skeptical judgement and/or action (i.e., state skepticism).

2

Other researchers adopt a process-based definition

(e.g., McMillan & White, 1993). Nelson (2009, p. 1) also defines PS as

a decision-making process, where skepticism is ‘indicated by auditor

judgments and decisions that reflect a heightened assessment of the

risk that an assertion is incorrect, conditional on the information avail-

able to the auditor’. More recently, Nolder and Kadous (2018) have

proposed a dual conceptualization of PS as both mindset (information

processing, in particular critical thinking) and attitude (evaluative

responses that include beliefs and feelings).

While these definitions have different foci—PS as a trait

(Hurtt, 2010) versus PS as a product of auditor judgement revealed by

skeptical behaviour (Nelson, 2009)—both models conceptualize PS as

a product of various inputs/factors, including traits and decision-

194 MARTINOV-BENNIE ET AL.