Metaphors and Auditor Professional Judgment: Can Non-Conscious Primes Activate Professionally Skeptical Mindsets?

Transcription

1 Metaphors and Auditor Professional Judgment: Can Non-Conscious Primes Activate Professionally Skeptical Mindsets? Mary C. Parlee Bentley University Jacob M. Rose Bentley University Jay C. Thibodeau Bentley University April 2014 Corresponding Author Mary C. Parlee PhD Student Accountancy Department Bentley University 175 Forest Street Waltham, MA Phone: Fax: Acknowledgements: We thank the experienced auditors who took the time to complete the experimental materials. We also wish to thank Kimberly Moreno, Anna Rose, participants of workshops at Northeastern University, Bentley University, and participants of the 2014 Auditing Midyear Meeting for their comments and helpful insights. 1

2 Metaphors and Auditor Professional Judgment: Can Non-Conscious Primes Activate Professionally Skeptical Mindsets? Abstract Results of an experiment with 99 senior auditors from two Big 4 audit firms indicate that reading simple metaphors promotes professional skepticism and influences auditors skeptical judgments. Relative to auditor participants who did not read a metaphor, participants who read a metaphor related to concerns about the honesty of sources of information (client-skeptical metaphor) or concerns about one s own ability to detect problems (self-skeptical metaphor) assessed higher levels of fraud risk, assessed greater needs for a risk management partner, and perceived that fraud-based explanations were more likely to cause fluctuations in client ratios. Further, the client-skeptical metaphor caused auditors to increase audit hours and increase audit testing for accounts likely to be influence by fraud. Metaphors are a form of non-conscious prime, and our results suggest that non-conscious priming represents a powerful and efficient tool for promoting professional skepticism. Key words: Audit planning, fraud risk, metaphor, professional skepticism 2

3 I. INTRODUCTION Promoting professional skepticism is a high priority for audit firms because professional skepticism is viewed as essential for the prevention of audit failures, and the Public Company Accounting Oversight Board (PCAOB) has linked the lack of professional skepticism to audit deficiencies discovered in their inspections (PCAOB 2008; PCAOB 2012). Professional skepticism is defined by the PCAOB (2012) as an attitude that includes a questioning mind and a critical assessment of audit evidence, and PCAOB standards require professional skepticism during the audit process. In a recent Staff Audit Practice Alert, the PCAOB indicated that features of the audit environment, such as strenuous workloads, can inhibit the appropriate application of professional skepticism (PCAOB 2012). Thus, determining methods to efficiently promote skepticism while auditors make professional judgments is critical to audit practitioners and regulators. The purpose of this study is to examine the potential for simple metaphors to prime professional skepticism during an auditor s professional judgment process. Metaphors represent a potentially valuable tool for promoting professional skepticism because prior research indicates that metaphors activate complex knowledge structures and initiate mindsets that guide the search for and analysis of evidence (e.g., Gibbs 1992; Galinsky and Glucksberg 2000; Boroditsky 2000; Boroditsky and Ramscar 2002; Slobin 2003; Thibodeau and Boroditsky 2011). In fact, metaphors have been shown to overwhelm the effects of stronglyheld opinions and beliefs and shift individuals judgment processes without extensive training and without increasing the cognitive demands placed upon decision makers. Metaphors exert influence over decision makers reasoning by activating frame-consistent knowledge structures, and inviting structurally-consistent inferences (Boroditsky 2000; Boroditsky and Ramscar 2002). As a result, when decision makers seek out evidence to inform their decisions, they tend to 3

4 choose information that will confirm and elaborate the frame suggested by the metaphor. Even fleeting and seemingly unnoticed metaphors can activate complex knowledge structures and influence an individual s reasoning in a powerful way (Thibodeau and Boroditsky 2011). We posit that metaphors can promote professional skepticism. To test our hypotheses, we conduct an experiment with a 3x1 between-participants design where participants are 99 senior auditors from two Big 4 audit firms. The manipulated independent variable is the presence of a metaphor (self-skeptical metaphor, client-skeptical metaphor, or no metaphor). We examine two different types of metaphors because prior research suggests that different forms of skepticism may result in differential effects on auditor judgment (Bell et al. 2005; Grenier 2011). One metaphor promotes skepticism of one s own ability to detect important evidence (self-skeptical metaphor) and the second metaphor induces skepticism of the source of evidence (client-skeptical metaphor). Recent research by Quadackers et al. (2013) indicates that a presumptive doubt perspective (where auditors assume some level of dishonesty by clients) is more related to auditors skeptical judgments than a neutral perspective, and our client-skeptical metaphor is designed to prime a form of presumptive doubt. Conversely, research by Grenier (2011) indicates that self-skepticism influences expert auditor s judgments related to fraud, but that client-skepticism does not change expert s judgment processes. Thus, our second metaphor is designed to prime self-skepticism, and the use of both metaphors allows us to test the competing findings of existing research. The experiment asks auditor participants to evaluate audit evidence, including a set of ratio fluctuations and a client explanation for the fluctuations. Findings from the experiment indicate that metaphors inducing either skepticism of one s own capabilities or skepticism related to clients both increased the participants assessments of fraud risk as compared to participants in 4

5 the control group. In addition, both types of metaphors increased auditors perceptions that fraud-related explanations are likely to explain the ratio fluctuations in the experimental case, and both increased the perceived need for a risk management partner to participate in the audit. For audit planning, however, only the client-skepticism metaphor influenced audit judgments. Specifically, reading a metaphor that primed skepticism related to the source of evidence (i.e., the audit client) caused auditors to increase planned audit hours and increase the number of planned audit tests related to the revenue cycle. Taken together, across a number of proxies for the level of professional skepticism, our findings support the proposition that metaphors can effectively promote professional skepticism because they prime skeptical mindsets. Our results are important to practice because audit firms and the PCAOB are actively seeking methods to promote professional skepticism, and we find that it is possible to activate mindsets that do so, independent of the audit task. As a result, we expect that priming techniques such as metaphors can favorably influence auditors professional skepticism across a wide range of audit tasks and judgments. Perhaps most importantly, employing priming techniques such as reading metaphors to promote professional skepticism can be done efficiently as priming does not require costly training or long-term time commitments. Moreover, reading metaphors does not increase the cognitive burdens or time demands of the audit process. From a theory perspective, the results of our experiment call into question previous conclusions that skepticism of one s judgment abilities has more influence on experienced auditors fraud-related judgments than client-related skepticism. Quite interestingly, we find that skepticism related to clients and skepticism of one s capabilities both have the capacity to influence risk assessments, but only the metaphors that triggered skepticism associated with clients causes auditors to adjust audit hours and planned procedures. 5

6 II. BACKGROUND AND HYPOTHESES DEVELOPMENT Metaphorical Framing Metaphors are extremely common in everyday communication. Rather than merely expressive figures of speech, they are fundamental to thought, understanding, and decision making (Lakoff and Johnson 1980; Young 2001). Studies from psychology and linguistics demonstrate that reading a metaphor activates schemas from one decision domain which will prime the reader to encode subsequent information using that schema (e.g., Gibbs 1992; Galinsky and Glucksberg 2000; Slobin 2003). For example, Thibodeau and Boroditsky (2011) described crime as a virus versus a beast and asked participants to propose methods for reducing crime. Participants decisions, information search, and perceptions were all significantly changed by these single-word metaphors because the metaphors instantiated a knowledge structure that guided their decision processes. The effects of these simple metaphors even overwhelmed the effects of existing beliefs and political affiliations on participants decisions. Subtle metaphors such as the single words described above significantly change people s judgment processes and decisions (Boroditsky 2000; Boroditsky and Ramscar 2002; Thibodeau and Boroditsky 2011). Thus, we expect that well-constructed metaphors can be employed to activate a schema related to professional skepticism, and the activation of this schema will influence the evaluation of audit evidence and decisions based upon this evidence. Such an approach represents a very efficient method of promoting professional skepticism because a single metaphor may have the capacity to induce professional skepticism that is applied across a wide variety of audit contexts without increasing the cognitive demands of the audit tasks. 6

7 Metaphors are known to activate conceptual schemas that assist in the comprehension of abstract concepts (Lakoff and Johnson 1999). Judgments in auditing incorporate numerous abstract concepts, such as risk, value, and skepticism. Lakoff and Johnson (1980) explain that abstract concepts are fundamentally metaphorical in nature because they are typically not experienced physically. The schemas activated by metaphors focus attention and information search on one aspect of a concept, while diminishing other aspects that are not consistent with the activated schema (Lakoff and Johnson 1980; Young 2001). By activating a conceptual schema associated with a skeptical mindset, we suggest that metaphors can prime auditors to employ professional skepticism in their judgment processes. Promoting Professional Skepticism Audit firms have long recognized the importance of exercising professional skepticism when making professional judgments. Indeed, the recent monograph entitled Elevating Professional Judgment in Accounting and Auditing: The KPMG Professional Judgment Framework (KPMG 2011, 6) argues that Professional skepticism is an objective attitude that includes a questioning mind and a critical assessment of audit evidence that is an important part of the professional judgment process. Thus, while professional skepticism is not synonymous with professional judgment it is clearly an important component or subset of professional judgment. In its 2010 report, Deterring and Detecting Financial Reporting Fraud, the Center for Audit Quality (CAQ) defines skepticism as a questioning mindset and an attitude that withholds judgment until evidence is adequate - promotes risk awareness and is inherently an enemy of fraud. Nelson (2009) defines skepticism as auditor judgments and decisions that reflect a heightened assessment of the risk that an assertion is incorrect, conditional on the information 7

8 available to the auditor. The conclusion of recent definitions of professional skepticism is that professional skepticism is necessary for the detection of fraud and is essential for the prevention of audit failures. Prior academic research provides support for this perspective because a lack of professional skepticism has been shown to be a primary cause of SEC enforcement actions and claims of malpractice made against audit firms (Beasley et al. 2001; Anderson and Wolfe 2002; Benston and Hartgraves 2002). As a result of the correlation between audit failures and insufficient professional skepticism, the PCAOB now emphasizes professional skepticism throughout its inspection process (PCAOB 2012). Auditing standards also stress the importance of professional skepticism. Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit, requires auditors to place an increased emphasis on professional skepticism. The standard states that the auditor should not be satisfied with less-than-persuasive evidence because of a belief that management is honest (AICPA 2002). As part of the requirement to exercise due professional care, PCAOB standards require the auditor to be professionally skeptical while planning the audit, performing the audit, and preparing the audit report (PCAOB 2012). Even though professional skepticism is now required, observations from the PCAOB's oversight activities continue to raise concerns about auditors application of professional skepticism. According to the PCAOB, when auditors are not appropriately skeptical, they may not obtain sufficient evidence to support their opinions, and they can fail to recognize when material misstatements exist in the financial statements (PCAOB 2012). Thus, the ultimate effects of professional skepticism are manifested in auditor judgment. Evidence from psychology indicates that increased skepticism leads to more critical evaluation of evidence (Schul et al. 2006). Skepticism of evidence or its source results in the 8

9 generation of more alternative explanations for evidence, consistent with a questioning mindset (Hilton et al. 1993; Schul et al. 2006). Academic researchers have proposed that there are two primary forms of professional skepticism that influence auditor judgment: skepticism related to the client and skepticism related to one s self and one s own judgment capabilities (Bell et al. 2005; Nelson 2009; Grenier 2011; Quadackers et al. 2013). Skepticism associated with the client involves concerns about the reliability of evidence and honesty of the client, while skepticism of the self brings about concerns about one s fallibilities and inability to detect all problems and errors. Prior audit research supports the idea that increased skepticism of the client and evidence influences judgment and decision making. Peecher (1996) promoted professional skepticism by informing experiment participants that audits were being conducted without adequate skepticism. When auditors were told to be more skeptical, the auditors relied less on a client s explanation. Phillips (1999) and Rose (2007) found that auditors who are made skeptical by audit evidence suggestive of fraud pay more attention to other evidence indicative of aggressive financial reporting. Finally, Grenier (2011) conducted an experiment where he informed half of the auditor participants that they should be skeptical of their own judgment abilities and half to be skeptical of the client. Auditors who were considered experts in the topic of the experimental case increased the number of fraud explanations they generated for audit evidence when instructed to be skeptical of their judgment abilities, but instructing them to be skeptical of the client did not influence the generation of fraud explanations. Grenier (2011) suggests that expert auditors exhibit fairly automatic judgments, and telling them to be skeptical of the client has little effect on their consideration of fraud. However, he suggests that making them more aware of 9

10 their own judgment fallibilities causes them to be concerned about what they know, and this heightens concerns about fraud. We propose that metaphorical primes that either induce self-skepticism or clientskepticism will both influence auditors professional skepticism and judgments. While Grenier (2011) finds that inducing skepticism of the client does not affect judgment, he primes participants by instructing them to be more skeptical of the evidence during the task. Peecher (1996) employed a similar approach to induce skepticism. Such manipulations are not necessarily representative of true priming but rather are akin to providing instructions to behave in a specific manner that relies on explicit memory. If auditors with significant expertise employ relatively automated judgments, these automated judgments largely involve non-conscious processes (Bargh and Chartrand 1999; Bargh et al. 2001). Automated, non-conscious processing is influenced more by implicit memory effects than by instructions based on explicit memory (Goldfarb et al. 2011). Reading metaphors represents true priming that is based on implicit memory effects, and the effects of metaphorical priming have been demonstrated to significantly influence information search and judgment through the activation of metaphor consistent schema. Thus, we expect that metaphorical primes, as well as other forms of true priming, will have different effects than providing instructions to be skeptical. Based upon the research related to metaphors, and the differences between metaphorical priming and providing instructions to be skeptical, we propose that metaphorical primes will promote professional skepticism (either client skepticism or self-skepticism) and will influence fraud risk assessments and the generation of explanations for evidence. The first three hypotheses address the expected effects of metaphors on fraud risk assessment and explanation generation: 10

11 H1: Auditors who read a metaphor that primes skepticism (self-skeptical or clientskeptical) will assess higher levels of risk of fraud relative to auditors who do not read a metaphor. H2a: Auditors who read a metaphor that primes skepticism (self-skeptical or clientskeptical) will generate more fraud-based explanations for ratio fluctuations relative to auditors who do not read a metaphor. H2b: Auditors who read a metaphor that primes skepticism (self-skeptical or clientskeptical) will be more likely to perceive that fraud-based actions are the causes of ratio fluctuations than will auditors who do not read a metaphor. The potential effects of metaphors on audit planning are less clear. The PCAOB states that auditors who have reason to be skeptical of evidence should (1) modify the planned audit procedures to obtain more reliable evidence regarding relevant assertions and (2) obtain sufficient appropriate evidence to corroborate management's explanations or representations concerning important matters, such as through third-party confirmation, use of a specialist engaged or employed by the auditor, or examination of documentation from independent sources (PCAOB 2012). However, while increased skepticism has been shown to decrease auditors trust in evidence and/or clients and increase attention to evidence of fraud, auditors often appear hesitant to adjust planned audit procedures in the face of increased risk. Glover et al. (2003) and Zimbelman (1997) find that auditors are willing to increase audit hours in response to increased fraud risk, but they are generally averse to planning to complete new audit procedures. Similarly, Asare and Wright (2004) find that the outcomes of fraud risk assessments do not result in the development of more effective audit plans. Thus, we anticipate that increased professional skepticism will result in more planned audit hours, but may or may not result in changes to audit procedures. 11

12 H3: Auditors who read a metaphor that primes skepticism (self-skeptical or clientskeptical) will propose more increases in audit hours relative to auditors who do not read a metaphor. We do not make a directional prediction for the effects of skepticism on audit plans. H4: Auditors who read a metaphor that primes skepticism (self-skeptical or clientskeptical) will not change planned audit procedures relative to auditors who do not read a metaphor. Generally, prior audit research related to professional skepticism has focused on auditors skepticism of audit evidence (i.e. client-skepticism). However, auditors are often overconfident in their own knowledge and competence (Kennedy and Peecher 1997). Thus, Bell et al. (2005) call for auditors to be skeptical not only of management and audit evidence but also of their own judgment processes. Prior research of judgment under uncertainty has shown that decision makers, including very experienced professionals, are consistently overconfident in their ability to estimate outcomes or likelihoods. Overconfidence leads to inaccurate predictions, overlynarrow confidence intervals, and non-calibrated judgments (i.e., confidence exceeds accuracy) (Kahneman & Tversky 1973; Alpert & Raiffa 1982; Brenner and Kohler 1996). According to Grenier (2011), reducing this overconfidence by promoting skepticism of one s own judgment capabilities allows auditors to recognize the potential imperfections of their judgments and limitations of their abilities to evaluate evidence. We expect that recognition of one s own limitations will increase the likelihood that participants will seek the advice of a specialist risk management partner. H5: Auditors receiving a self-skeptical metaphor will be more likely to consult with a risk management partner than will auditors receiving a client-skeptical metaphor or no metaphor. 12

13 III. RESEARCH METHOD Participants A total of 99 senior auditors, employed at two Big 4 public accounting firms, are included in the sample. 1 All of the participants were audit seniors with two to seven years of experience (mean experience of 3.5 years). Subjects were randomly assigned to a treatment condition, and the auditors participated in the experiment while attending firm training. The majority of the auditors (76%) were CPAs. See Table 1 for demographic data. Insert Table 1 about Here Experimental Design and Procedure The experiment is a 3 x 1 between-participants design. The manipulated factor is the presence of a metaphor (self-skeptical metaphor, client-skeptical metaphor, or none). All experimental materials were pilot tested with graduate accounting students prior to the administration of the experiment. The participants first read a story (or no story for the no-metaphor treatment) that included a metaphor. The story was a separate task that was unrelated to the audit judgment task, which followed in the second phase of the experiment. Participants were informed that they would be asked questions related to the story at the end of the case in order to test their memory for the story details. A memory question was asked as part of the manipulation checks. The inclusion of the memory task was designed to promote careful reading of the metaphor by participants. After reading the story, participants received brief background information for a 1 A total of 106 auditors participated in the study. The sample was reduced by three participants who did not complete the entire task and three participants who failed the manipulation checks. The statistical inferences are unaffected by the removal of the participants who failed manipulation checks. 13

14 hypothetical company and information related to the current audit engagement. The audit evidence included a set of ratio comparisons and a client-provided explanation for the ratio fluctuations. The evidence in the case materials was adapted from the experiment used in Libby (1985) and Libby and Frederick (1990). After reviewing the available evidence, participants complete a series of judgments including: evaluation of the risk of financial fraud, an assessment of a client-provided explanation for ratio fluctuations, generation of alternative explanations for ratio fluctuations, and determination of the nature and extent of recommended audit procedures. The final phase of the experiment included manipulation checks, debriefing questions, and demographic questions. The data were collected on three separate occasions over a period of three months. The materials were administered in a classroom setting, and the average time required to complete the study was 25 minutes. Two authors administered the experiment to insure that participants followed instructions and to verify random assignment. Independent Variable The independent variable is the presence and type of metaphor. We designed two types of metaphors based upon existing theory. A self-skeptical metaphor focuses an auditor s attention on his or her own ability to evaluate evidence and make quality judgments. The short story with the self-skeptical metaphor describes how experienced physicians often fail to notice evidence of viral infections, which results in serious judgment errors. A client-skeptical metaphor focuses attention on potential deceit by providers of information. The short story with this form of metaphor describes how car salesmen often engage in self-serving behavior, including lying to customers about the condition of a car to earn a commission. 14

15 Dependent Variables We are interested in the effects of metaphors on the professional skepticism of auditors. As Quadackers et al. (2013) point out, there is no single accepted judgment that best reflects evidence of auditor professional skepticism. As a result, we employ multiple proxies for auditor skeptical judgments. We employ six proxies derived from prior research related to professional skepticism (McMillan and White 1993; Peecher 1996; Shaub 1996; Shaub and Lawrence 1996; Zimbelman 1997; Choo and Tan 2000; Knapp and Knapp 2001; Rose 2007; Hurtt et al. 2012; Quadackers et al. 2013). The proxies are: (1) An assessment of fraud risk. Participants responded to the following scale: Based on all the information you reviewed in this case, what is the overall risk that financial statement fraud is a primary cause of the ratio fluctuations? Very Moderate Very Low High (2) The number of fraud-based explanations for audit evidence. Participants listed up to ten specific explanations that may have led to the change in the financial ratios, and for each explanation indicated whether the explanation involved a normal operating issue that does not involve an error (non-error), an unintentional error, or an intentional error (i.e., financial fraud). (3) Likelihood that fraud-based explanations for audit evidence account for the ratio fluctuations. Participants indicated the likelihood that each of the explanations they provided accounts for most of the fluctuations in the ratios on a scale between (0 = impossible; 100 = absolutely certain). 15

16 (4) Determination of audit hours. Participants were asked to revise the budget, if desired, for the final revenue program. They indicated that percentage change that they desired (e.g., +5%) for each category in the revenue program. (5) Planning of audit procedures. Participants listed up to ten audit procedures that they perceived were the most important for determining the cause of the ratio fluctuations. (6) Assessment of the need for a risk management partner. Participants responded to the following scale: What is your opinion regarding the necessity of conferring with a risk management partner to finalize the audit plan for MedEquip. Risk management partners are very experienced with fraud risk situations. Given the need for efficient audits, risk management partners are not consulted on every engagement. They are only involved with an audit when the engagement team believes its audit program may not reduce the risk of detecting fraud to a tolerable level. Would you recommend consulting with a risk management partner in order to plan the current year s audit for MedEquip? Definitely Uncertain Definitely Would Not Would Consult Risk Consult Risk Management Partner Management Partner Manipulation Checks and Preliminary Tests IV. RESULTS We tested the metaphor manipulations with the following questions (there was no question for the participants in the no metaphor treatment condition): For the story you read, what did the speaker essentially say? (please select one of the two choices below related to the story that you read) Those who read the physician story made the following choice: The senior physician essentially sent the following message to the junior surgeons: 16

17 You are a trained professional with excellent judgment skills. When making complex judgments, particularly on issues for which you have little experience, do not be too confident in your ability to properly diagnose a rare, complex problem. You are a trained professional with excellent judgment skills. When making complex judgments, particularly on issues for which you have little experience, you should be very confident in your ability to properly diagnose a rare, complex problem. Those who read the salesperson story made the following choice: The senior salesperson essentially sent the following message to the junior salespersons: Salespersons have a negative public reputation for being unscrupulous and selfserving; in truth, this reputation is totally inaccurate and undeserved. Salespersons have a negative public reputation for being unscrupulous and selfserving; in truth, this reputation is totally accurate and deserved. Three participants failed the metaphor treatment manipulation check, and these participants are not included in the hypotheses tests. We also conducted a preliminary MANOVA with the metaphor treatment as the independent variable, and the dependent variables were the demographic factors listed in Table 1. This model is used to evaluate the effectiveness of participant randomization to treatment conditions. None of the demographic variables were significant in the model, indicating that the randomization procedure was effective with regard to participant demographics. Test of Hypotheses The first hypothesis posits that metaphors that prime client-skepticism or self-skepticism will cause auditors to assess higher levels of risk of fraud. Hypothesis one is tested using an ANOVA model with the assessment of fraud risk as the dependent variable and metaphor treatment as the independent variable. 2 Results are presented in Table 2. Planned comparisons that compare the no-metaphor treatment mean fraud risk assessment of 3.52 to the self-skeptical 2 None of the demographic factors were significant covariates in this or the following models used to test the hypotheses. Thus, no demographic covariates are included in the models. 17

18 risk assessment of 4.70 and to the client-skepticism risk assessment of 4.48 are statistically significant (p = and p = respectively). Thus, H1 is supported. 3 Insert Table 2 about Here In addition to the hypothesized effects of metaphors on the assessment of fraud risk, we also conduct a test of participants assessments of the likelihood that expenses are understated. The ratios in the experimental case are derived from Libby (1985). Libby found that experts perceived that underreporting of bad debt expense was the most likely error-related cause of the fluctuations in ratios in our experimental task. As a result, we conduct a supplemental test to determine whether inducing skepticism increases auditors assessments of the risk that expenses have been misstated, as this would indicate that the participants who read the metaphors made judgments about the ratios that are more similar to experts judgments than were the judgments of participants who did not read a metaphor. The results are presented in Table 3, and planned comparisons indicate that the client-skeptical metaphor resulted in significantly increased (p = 0.004) perceived likelihood that expenses are misstated (5.12), relative to the no-metaphor condition (4.03). The self-skeptical metaphor (4.55) did not result in a statistically significant increase in the perceived likelihood that expenses are misstated. Insert Table 3 about Here Hypothesis 2a proposes that auditors who read a metaphor that primes self-skepticism or client skepticism will generate more intentional error explanations for ratio fluctuations relative to auditors who do not read a metaphor. Results of an ANOVA model with the number of intentional error explanations for ratio fluctuations as the dependent variable indicate that there are no significant effects of either metaphor on the number of intentional error explanations (p > 3 We also confirmed the main effect of the metaphor treatments on fraud risk assessment and all other dependent variables with a single MANOVA. Results are all consistent with the individual ANOVA results. 18

19 0.45). Similarly, an additional test of the effects of the metaphors on the proportion of intentional error explanations generated relative to the total number of explanations is not significant (p > 0.80). The results do not support H2a. While Hypothesis 2a examined the number of intentional error explanations generated by auditors, Hypothesis 2b focuses on auditor participants assessments of the likelihood that the intentional error explanations they generated are likely to explain the ratio fluctuations. Results are presented in Table 4. Auditors who read a metaphor that primes self-skepticism (mean = 20.73) or client skepticism (mean = 21.58) perceived that the intentional errors they generated were more likely to cause the ratio fluctuations (p = and p = 0.042) than were auditors who did not read a metaphor (mean = 12.52). Results support Hypothesis 2b. Insert Table 4 about Here The third hypothesis examines whether metaphors that prime client or self-skepticism cause auditors to increase planned audit hours. Participants had the opportunity to adjust audit hours for six categories in the revenue program (test aged trial balance, confirmations, adequacy of bad debt provision, cutoff tests, analytical procedures, and other). We evaluated all six categories, and the metaphors significantly influenced the category for bad debt provision, but none of the other categories. Participants reading the client-skeptical metaphor increased audit hours related to the bad debt provision (mean = +5.39%) significantly more (p < 0.066) than did participants in the no-metaphor treatment (mean = +3.0%) or self-skepticism metaphor treatment (mean = +3.06%). Thus, we find evidence that metaphors that induce client skepticism cause auditors to increase audit hours related to tests that are intended to detect the most likely fraudulent causes of ratio fluctuations. 19

20 The next hypothesis (H4) is non-directional and examines whether metaphors influence or do not influence audit plans. Participants listed up to ten audit procedures that they perceived were the most important given the ratio fluctuations. We classified each audit procedure according to audit cycle, and summed the number of procedures within each cycle. The only cycle where the number of audit procedures differed across treatment conditions is the revenue/receipts cycle. The results for tests of the number of audit procedures generated for the revenue/receipts cycle are presented in Table 5. Similar to the results for audit hours, only the client-skeptical metaphor caused changes in audit procedures. Planned comparisons indicate that participants who read the client-skeptical metaphor generated more revenue/receipts cycle audit procedures (mean = 3.70) than did participants in either the no-metaphor treatment (mean = 3.12, difference significant at p = 0.02) or the self-skeptical metaphor (mean = 2.82, difference significant at p = 0.003). Insert Table 5 about Here The final hypothesis (H5) posits that auditors who read a self-skeptical metaphor will be more likely to consult with a risk management partner than will auditors receiving a clientskeptical metaphor or no metaphor. Results for tests of H5 are presented in Table 6. Participants reading either the self-skeptical metaphor (0.06) or the client-skeptical metaphor (0.00) both perceived greater need (p = and respectively) for a risk management partner relative participants who did not read a metaphor (-1.12). Results partially support hypothesis five. Insert Table 6 about Here Supplemental Tests While metaphors are known to activate non-conscious changes to judgment processes and activate mental models, it is also possible that the metaphors employed in this study alter 20

21 conscious perceptions of one s own ability or beliefs about the honesty of specific clients. We test for these possibilities with the following debriefing questions: How confident are you in your ability to analyze complex, rare problems and arrive at sound and accurate judgments? Not Moderately Totally Confident Confident Confident at All What do you believe about the honesty of most clients? (0 = Most clients are totally dishonest with me when I ask them audit related questions, regardless of the issue at hand, 5 = Most clients are selectively honest with me when I ask them audit related questions, depending on the issue at hand; 10 = Most clients are extremely honest with me when I ask them audit related questions, regardless of the issue at hand) Totally Selectively Extremely Dishonest Honest Honest There are no differences across the three treatment conditions (p > 0.70) in beliefs about the honesty of clients, indicating that the client-skeptical metaphor does not change perceptions of the honesty of our audit participants clients. There is evidence, however, that the selfskepticism metaphor decreased perceptions of one s own abilities relative to the other treatments. Participants in the self-skepticism condition rated their confidence in their judgment ability (mean = 5.96) significantly lower (p = 0.08 and p = 0.04, two-tailed) than did participants in the client-skepticism condition (mean = 6.88) or the no-metaphor condition (mean = 6.73). V. DISCUSSION We conducted an experiment with 99 senior auditors from two Big 4 audit firms in order to investigate the potential for simple metaphors to promote professional skepticism and facilitate skeptical judgment. Recent research of the effects of professional skepticism on auditor 21

22 judgment finds conflicting results regarding the effectiveness of client skepticism versus selfskepticism. In addition, there is limited research that examines effective methods for promoting professional skepticism throughout the audit process. Our research addresses the current theoretical conflicts and practice needs. The results from the experiment indicate that metaphors that prime client skepticism or self-skepticism do cause auditors to increase their assessments of fraud risk, increase the likelihood that auditors perceive that fraud-based explanations account for audit evidence, and increase the perceived need for a risk management partner to evaluate the audit evidence. We had also expected that the metaphors would increase the number of fraud-related explanations generated for the audit evidence, but we did not find any effects of either metaphor on the number of fraud-based explanations. While the auditor participants did not generate more fraudbased explanations, they did perceive that explanations related to fraud were more likely to explain ratio fluctuations. Tests of the effects of the metaphors on planned audit hours and audit procedures indicate that only the client-skepticism metaphor caused auditors to increase audit hours and change planned audit procedures. These results are particularly important because they indicate that client skepticism and self-skepticism have different effects on auditors skeptical judgments. The results also indicate that priming skepticism, rather than instructing auditors to be skeptical, produces different effects and potentially more widespread effects on auditor judgments. Finally, many prior researchers have discussed the problem that interventions designed to improve fraud detection change risk assessments but do not result in changes to the actual audit (e.g., Bloomfield 1995; Zimbelman 1997). We find that true primes have the capacity to change 22

23 auditors assessments of fraud risk and audit plans (i.e., hours, procedures, and need for risk management partners). While not hypothesized, we also find evidence that promoting professional skepticism with metaphors caused auditor participants to increase their focus on the understatement of expenses and particularly on provisions for bad debt expense. Further, evaluation of audit plan changes reveals increased testing of the revenue and receipts cycle (which is the cycle related to bad debt expenses) for readers of the client-skeptical metaphor. Prior research that employed the same three ratio fluctuations found that expert auditors rated the understatement of bad debt expense as the most likely error-related cause of the changes in ratios (Libby 1985). These findings suggest that when skepticism is primed through non-conscious methods such as metaphors, auditors focus more of their attention on the most likely fraud schemes and redirect more audit effort towards detecting the most likely frauds. Based upon these and our other results, metaphors and other forms of non-conscious priming appear to represent powerful and effective tools for improving auditors professional skepticism and skeptical judgments. 23

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28 Appendix A Independent Variable Manipulation Internally Focused Skepticism A well-known senior physician gave a seminar to a large group of younger practicing physicians from around the country. The senior physician was speaking about his expertise related to viruses. At one point in the seminar, the physician stated Many deadly viruses quietly spread throughout the body and are nearly impossible to detect, even by the most skilled doctors. No matter how knowledgeable one is about viruses and how much experience one has in the field, many viruses are extremely difficult to detect. Even minor viral infections can spread and cause serious harm. I have found that many of the brightest and most experienced physicians regularly miss evidence of viral infections and then make very serious judgment errors that result in terrible harm. We tend to be far too confident in our own ability to detect viruses and other problems in the body. The sage physician warned the younger physicians to always be aware of their human limitations with regard to analyzing complex problems, particularly rare viruses where there are very few occurrences, because being over-confident during such a diagnosis can lead to deadly consequences for the patient. Always be circumspect about your own capabilities, warned the senior physician, It is okay, even healthy, to question your own capabilities. Externally Focused Skepticism A highly successful car salesman gave a seminar to a large group of less experienced used car salespeople from around the country. The salesman was speaking about his views on how to be successful selling used cars. At one point in the seminar, the salesman stated Car salespeople have become famous for telling colossal lies and for engaging in unscrupulous behavior. Most buyers believe that salespeople will do anything to obscure a car s faults and mislead them. The public also believes that salespeople regularly sell cars that break down and leave the drivers stranded. To be honest, he went on, there is a lot of truth to these negative perceptions. Let s be honest with ourselves our motives are purely self-serving in nature. What we need to do is buy a car at a low price and sell it at a high price. This is how we and our dealerships make a living. Since used cars are sold as is, once the customer walks out of the door, do we really care whether the car runs well or not? Personally, I don t give a flip, and I suggest that you should not either. Our job is not to make friends with the buyers, our job is to sell, move cars off the lot, and make money. If during the sales process this means that we need to stretch the truth to make the sale, well, buyer beware! 28