The effects of self‐esteem and perspective‐taking on group auditor's review actions

• Published date: 01 April 2022
• Author: Ayla M. Borkus,Hielke D. Boer,Herman Brenk,Niels Nieuw Amerongen
• Date: 01 April 2022
• DOI: http://doi.org/10.1111/ijau.12250

ORIGINAL ARTICLE

The effects of self-esteem and perspective-taking on group

auditor's review actions

Ayla M. Borkus

1

| Hielke D. de Boer

2

| Herman van Brenk

3

|

Niels van Nieuw Amerongen

3,4

1

KroeseWevers, Deventer, The Netherlands

2

De Nederlandsche Bank, Amsterdam, The

Netherlands

3

Center for Accounting, Auditing & Control,

Nyenrode Business University, Breukelen, The

Netherlands

4

V&A accountants-adviseurs, Noordwijk, The

Netherlands

Correspondence

Herman van Brenk, Center for Accounting,

Auditing & Control, Nyenrode Business

University, Breukelen, The Netherlands.

Email: h.vbrenk@nyenrode.nl

We examine the effects of self-esteem and perspective-taking—both separately and

jointly—on group auditors' selection of the next steps after reviewing the findings of

a component auditor on a warranty provision. These individual and situational deter-

minants of professional scepticism are important factors for enhancing audit quality

in multinational group audits given the concerns about group audit quality raised by

regulators. We hypothesize that group auditors who have high self-esteem and are

prompted to take the regulator's perspective plan more effective next steps after

reviewing the work of component auditors. In an experiment with 103 audit partners

and managers, we measured self-esteem and manipulated a perspective-taking

prompt. As hypothesized, we find that group auditors who have high self-esteem or

who are prompted to take the regulator's perspective plan more effective next steps

than those with low self-esteem or who are unprompted. We find no support for an

interaction between self-esteem and perspective-taking in the context of our study.

Audit firms can use the insights from our study in selecting group auditors based on

self-esteem and developing firm policies to consider the regulator's perspective when

reviewing the findings of component auditors to enhance audit quality in multina-

tional group audits.

KEYWORDS

audit evidence, audit judgement, audit quality, auditing standards, psychological

characteristics

1|INTRODUCTION

As a result of globalization, companies are larger, more complex and

more internationally oriented. This increased scale and complexity of

companies drive the need for the use of component auditors. Hence,

multinational group audits can be very complex as a result of coordi-

nation and communication challenges between the group audit team

and component auditors (Downey & Bedard, 2019; Downey &

Gold, 2017; Downey & Westermann, 2021). Further, regulators

around the world, such as the International Forum of Independent

Audit Regulators (IFIAR, 2021) and the Public Company Accounting

Oversight Board (PCAOB, 2016), have raised concerns about audit

quality in group audits.

1

Therefore, in a post-implementation review

of the clarified ISAs, the International Auditing and Assurance Stan-

dards Board (IAASB, 2013, p. 21) noted that ‘more guidance

[is] needed on the importance of applying professional skepticism

when understanding the component auditor, and assessing the suffi-

ciency of the component auditor's work for group purposes’.

2

In this

study, we address these issues related to the group auditor's role of

reviewing the findings of component auditors.

3

We provide evidence about whether the personality trait of self-

esteem and a prompt to take the regulator's perspective enhance the

effectiveness of group auditor's review actions. We define these

review actions as the group auditor's next steps selected after

reviewing the findings of a component auditor. Self-esteem is a char-

acteristic that can be described in terms of inner calmness, feelings of

Received: 28 July 2020 Revised: 21 September 2021 Accepted: 22 September 2021

DOI: 10.1111/ijau.12250

Int J Audit. 2022;26:61–77. wileyonlinelibrary.com/journal/ijau ©2021 John Wiley & Sons Ltd 61

self-worth, belief in one's own abilities and a tendency to challenge

the work of others (Boush et al., 1994; Griffith et al., 2016;

Hurtt, 2010; Kent et al., 2006; Owens, 1993).

4

These characteristics

are important in the context of multinational group audits—where

group auditors interact with many other people at senior levels—for

several reasons. First, in a group audit, the group auditor has to

develop and maintain satisfactory relationships with group manage-

ment and governance bodies, component management and compo-

nent auditor(s). As these stakeholders might have different and

potentially conflicting interests, it is important that group auditors

remain stable and calm when supervising multinational group audits.

Second, the characteristic of self-esteem is important in the set-

ting of multinational group audits because of the responsibility of the

group auditor to evaluate the adequacy of the component auditor's

work and, if insufficient, to determine what additional procedures are

to be performed by the component auditor or by the group engage-

ment team (see ISA 600.43; IAASB, 2018). Further, the group auditor

is required to evaluate whether multiple component auditors have

obtained sufficient appropriate audit evidence on which to base the

group audit opinion (see ISA 600.44; IAASB, 2018). As such, the

group auditor has to challenge and persuade other auditors at a

senior level (i.e., audit partners and managers), often from multiple

jurisdictions and different audit firms, to assure compliance with pro-

fessional standards and applicable legal and regulatory requirements.

5

In this unique setting, it is important to stay calm with feelings of

self-worth and a belief in one's own abilities (i.e., high self-esteem) to

enhance the quality of these complex and multinational audit

engagements.

As scepticism is at the heart of what auditors do (ICAEW, 2018),

both the component auditor and the group auditor have to exercise

professional scepticism. However, the group auditor has to switch

between cooperating and reviewing roles during the group audit

engagement. That is, in the planning phase of the audit, the group

auditor is involved in the component auditor's risk assessment to

identify significant risks of material misstatement of the group finan-

cial statements (ISA 600.30; IAASB, 2018). Further, effective commu-

nication in multinational group audits is a two-way communication

process with cooperation of both the group engagement team and

component auditors (ISA 600.A57-A60; IAASB, 2018). At the same

time, the group auditor has a reviewing role in the evaluation phase of

the audit by reviewing and evaluating the work performed by the

component auditors to assess whether the component auditors have

obtained sufficient appropriate audit evidence on which to base the

group audit opinion (see ISA 600.42–45; IAASB, 2018). Given the

complexity of judgement and decision-making in group audit settings

and the multiple people and perspectives involved in these audits, the

Center for Audit Quality (CAQ, 2020) not surprisingly has put group

audits and professional scepticism on the list of topics of interest in

2021. The CAQ is explicitly interested in research into the question of

how group auditors can improve the effectiveness of multi-location

audits. Our study addresses this call for research.

With respect to professional scepticism in auditing, Nelson (2009)

proposed a model that highlights an auditor's traits as a determinant

that contributes to both sceptical judgement and sceptical action. One

of these individual characteristics is self-esteem. Self-esteem provides

the ability and power to act on the information obtained from others

and thus improves the group auditor's ability to be sceptical towards

the work of component auditors. These characteristics are important

in the setting of multinational group audits because ISA 600 provides

the group auditor with discretion to either request the component

audit team to perform additional work or to conduct additional work

by the group audit team (IAASB, 2018). Further, the Exposure Draft

(ED) of the revised ISA 600 stresses the important role of two-way

communication between group auditors and component auditors

(IAASB, 2020). Hurtt (2010) describes self-esteem as an inner calm-

ness, feelings of self-worth and a belief in one's own abilities. Individ-

uals who exhibit high levels of self-esteem are expected not to be

easily persuaded by others, which is an important characteristic for

group auditors, who must be independent when evaluating the work

performed by component auditors. As such, we predict that group

auditors with high self-esteem plan more effective next steps after

reviewing the findings of a component auditor.

In addition to individual characteristics, professional scepticism is

determined by situational characteristics (Hurtt, 2010; Nolder &

Kadous, 2018; Robinson et al., 2018). We examine the effects of a

regulator's perspective-taking prompt on group auditor's review

actions. Perspective-taking is a situation where you put yourself in

someone else's shoes and explicitly consider that perspective in your

judgement and decision-making. This construct of perspective-taking

is related to the requirement to ‘stand back’when forming a group

audit opinion as included in the ED ISA 600 to support the exercise of

professional scepticism (IAASB, 2020). Prior research shows that

perspective-taking can mitigate confirmation and egocentric biases

(Asare & Wright, 2019; Epley et al., 2006; Galinsky et al., 2008). In our

study, we include the perspective of the regulator because this per-

spective is external to the group auditor and specifically focused on

audit quality. As such, the prompt to take the regulator's perspective

is a situational characteristic, stimulating group auditors to challenge

the work performed by component auditors. Therefore, we hypothe-

size that group auditors with this perspective-taking prompt plan

more effective next steps after reviewing the findings of a component

auditor.

We also examine the interaction between self-esteem and regula-

tor's perspective-taking on group auditor's review actions. This inter-

action is important because prior research in psychology shows that

people with high self-esteem have a higher ability to take the perspec-

tive of someone else and shows that perspective-taking reduces ego-

centric biases when people have high self-esteem (Davis, 1983;

Galinsky & Ku, 2004). We rely on trait activation theory as a theoreti-

cal framework to develop our interaction hypothesis (Lievens

et al., 2006; Tett & Burnett, 2003; Tett & Guterman, 2000). Based on

this theory, we argue that the perspective-taking prompt in our study

is a relevant situation to activate and express the characteristic of high

self-esteem. That is, when stimulated by the regulator's perspective-

taking prompt, group auditors with high self-esteem are more likely to

challenge the work performed by component auditors because the

62 BORKUS ET AL.