Pueblos indígenas Wayúu en el departamento de la Guajira

The development and manifestation of sceptical behaviour is subject to a range of internal and external influences, including regulation, education, religion, social and workplace conditioning and norms, and life experiences. Barriers may include identifying what scepticism actually is, gaps in identified competence between audit standards and the identification of fraud in general.

In attempting to understand reasons for sub-optimal professional scepticism, prior research (Westermann et al, 2014; Hurtt et al, 2013) has identified numerous factors that may positively and negatively affect how and when it manifests. Among these,

is Westermann et al’s (2014, p.4) finding that workplace pressures can be barriers to effective scepticism (Hurtt et al, 2013; Svanström, 2015), including “inspection, litigation risk, client importance, time-budget pressure, workpaper review and formal evaluation”. Such barriers have also been noted in other publications (including: Nelson 2009; PCAOB 2012a; Hurtt et al. 2013; Westermann et al, 2014; Vera- Muñoz, 2015), along with documentation practices (Van Peursem, 2010; Rasso, 2015; Westermann et al, 2014); partner and supervisor attitudes and expectations (Carpenter & Reimers, 2013; Peecher et al, 2013b) and even audit regulation (Glover & Prawitt, 2014; Peecher et al, 2013b). Van Peursem (2010, pp. 24, 27) adds poor planning, cost cutting, and over-reliance upon systems and computer-assisted techniques to that list. Further, common auditing procedures may exacerbate the problem in that the veracity of procedures may be overestimated, with those involving detailed instruction or specific interpretation inhibit professional scepticism (Rasso, 2015). These factors increase the possibility that negative influences may outweigh the positive influences in some audits.

The above research highlights that the expression of a sceptical attitude is influenced by auditors’ intrinsic properties, as well as by numerous extrinsic factors, but it is not yet clear whether the degree of positive(negative) extrinsic influence is offset or amplified by individual auditors’ intrinsic abilities.

However, scepticism is both a personality trait (Hurtt, 2010) and a cognitive function (Birnberg, 2011), and the varying degrees of scepticism exhibited by auditors are necessarily influenced by varying degrees of self-interest and rationality (Nelsona et al, 2003). Following their study of SEC Enforcement Actions, Beasley et al (2001) assert that “in many of the fraud cases, it appeared auditors simply chose not to pursue identified audit issues” (Beasley et al, 2001, p. 65). Some possible ethics- related explanations for this behaviour is provided, but Beasley et al (2001) do not

describe the basis for that causality. In a study of New Zealand audit failures, Van Peursem (2010) attributes audit failures to ritualised audits, arising from professional structures and legitimating practices that inhibit scepticism.

Mintz (1995) suggested that the behaviour gap between knowledge and actions is resolvable only by normalising detailed analysis. However, Rasso’s (2015) view is that even senior auditors have difficulty assimilating details to form a big picture view. Such a view would facilitate identification of gaps, though Rasso (2015) further asserts that auditors are not good at recognising patterns in the evidence even when that evidence is complete, and fail to accommodate negative evidence.

Mintz’ (1995) stance, however, may be considered an extension of Bastiat’s (1845) enduring assertion that terminology must be normalised, reducing the mystery surrounding the term ‘fraud’. Openness is the antithesis of fraud, and normalisation is the connection between theoretical knowledge and personal experience. Normalising cognitive challenges is not so simple though: Emotional influences are under-researched (Hurtt et al, 2013), and therefore stress responses, mood and other factors which may impact upon responses to risk are poorly understood. Nolder (2012) suggests that this is an important and under-researched area as auditors’ emotional reactions in high-risk settings can influence their level of skepticism. She notes, ‘‘In general the risk research provides strong evidence to suggest that an auditor’s affective response to risks significantly contributes to variations in his/her skeptical judgments and actions’’ (Nolder 2012, 11).

Further influences are neurobiological, such as prefrontal cortex influences on rationality and manifestations of self-interest. For example, Fleming, Thomas & Dolan (2010) have found that activity in the subthalmic nucleus area of the brain

signifies stress and human predisposition to avoid difficult decisions and challenges to the status quo, suggesting that auditors may resist identification of material fraud.

Prior research has revealed that human capacity to exhibit scepticism is influenced not only by how we utilise our brains, but also by the structure, chemistry and electrical activity in our brains. Previous studies of auditor behaviour in general, and of scepticism in particular, identify environmental and cognitive/emotional barriers to professional scepticism in auditors, but ignore neurobiological factors which are inextricably interconnected with the cognitive and emotional factors that influence human perception of evidence and the various stages involved in evaluation of that evidence. Examples of these biological factors, which may be barriers in themselves, and/or underpin whether, and how, the other barriers manifest, are explained in the remainder of this section.

When misstatements or anomalies are identified, individuals may rationalise that what they have found is an error, rather than a signal of possible fraud. These types of false rationalisations are formed with faulty logic (Nelsona et al, 2003). Thus even natural propensity for scepticism can be impeded by false logic and biases in the application and interpretation of data. One such impediment is confirmation bias (Trompeter & Wright, 2010; Hurtt et al, 2013; Fukukawa & Mock, 2011), which appears particularly problematic in terms of management representations.

The frontal and prefrontal areas of the human brain are utilised for complex thought, such as hypothesis and criteria evaluation, risk assessment and decision making (New Scientist, 2010). This area of the brain also stores past perceptions (New Scientist, 2010), suggesting that it may also be responsible for heuristic influences which may introduce unconscious biases to simplify complex tasks.

The prefrontal cortex develops most significantly in early adulthood, and has been positively correlated with maturing capacity to assess risk. This development is vital to the audit process because the purpose of the requirement to exercise professional scepticism throughout audit is to enable continual assessment of audit risk; that is, the risk of forming an inappropriate audit opinion. On this basis, it could reasonably be expected that younger auditors are less sceptical than their seniors. This is of interest because much of the coal-face audit work is undertaken by junior audit team members, and the audit opinion is formed on the basis of that work, signed off by experienced auditors. However, such a proposal is inconsistent with prior research findings that suggest junior auditors are more sceptical than their seniors, as discussed above at 2.4.3. A possible explanation for this conundrum may be that junior auditors may require more evidence upon which to base their judgments, as compensation for lacking the heuristic benefits of experience. Alternatively, as Hurtt et al (2013) suggest that audit seniors’ accountability for client retention might explain their relatively lower scepticism.

In the absence of a benchmark of professional scepticism, this relative comparison is not entirely useful though: It is possible that senior auditors are exhibiting professional scepticism and that the ‘more sceptical’ juniors are excelling. At face value, the above concepts suggest a brief window of ‘most optimal’ scepticism in early-career auditors with perhaps only two or three years’ experience. Future research that clarifies this may contribute knowledge of significant interest to academics, professional bodies and professional practitioners in terms of audit team structure, professional development and audit partner rotation practices.

To further complicate the task of evaluating one’s own thinking processes (scepticism skill), auditors may need to undertake their evaluations in unique ways, because it is noted that individuals are subject to different biases and undertake

different thinking processes as a result of unique brain development and accumulated life experiences (Peecher et al, 2013b). Further, activity in the subthalmic nucleus area of the brain appears to predispose decision makers to avoid difficult decisions in favour of maintaining a status quo (Fleming, Thomas & Dolan, 2010). Suggestion that humans are hard wired to avoid scepticism may help explain suboptimal judgements even by auditors with ostensibly well-developed analytical skills.