The effects of self-esteem and perspective-taking on group auditors’ review actions

By Professor Herman van Brenk from Nyenrode Business University

Nowadays, companies are larger, more complex and work on a global scale. This has resulted in increased demand for component auditors in the setting of multinational group audits. The complexity in a company, however, is reflected in the complexity of interactions between group audit teams and component auditors, due to coordination and communication challenges. This had lead regulators around the world to question the quality of group audits.

Looking specifically at the individual characteristic of self-esteem and the situational characteristic of perspective-taking, myself, part of the Center for Accounting, Auditing and Control at Nyenrode Business University, alongside three other researchers, were interested to find out whether either of these factors could enhance the effectiveness of group auditor’s review actions. The findings of this study are recently published in International Journal of Auditing (https://doi.org/10.1111/ijau.12250).

In our research project, we conducted an experiment with 103 Big 4 audit partners and managers who have experience acting as group auditors. We asked them to take on the role of the group auditor and to evaluate the findings of a component auditor regarding a warranty provision. We measured self-esteem based on Hurtt’s (2010) professional scepticism scale and manipulated perspective-taking as a prompt to take the regulator’s perspective (prompted versus unprompted). Participants evaluated the findings of a component auditor and selected the next steps they would take as the group auditor. 

We were motivated to conduct research in the setting of multinational group audits for four reasons. First, this setting is complex based on the multiple stakeholders that are involved in these types of audits, providing lots of opportunities to examine the behaviour of auditors. Second, little research has been conducted in this setting and there are several calls for more research on multinational group audits (see Center for Audit Quality, 2020; Sunderland and Trompeter, 2017). Third, the standard setter calls for more guidance to apply professional scepticism by group auditors when reviewing the work of component auditors. Fourth, companies are larger, more complex, and more internationally oriented as a result of globalization, making the setting of multinational group audits more relevant to examine. 

The trait of self-esteem is one of importance. In the setting of multinational group audits, group auditors interact with several people at senior levels, such as group management, component management, and component auditors. All these stakeholders might have different and potentially conflicting interests, whereas the group auditor has the final responsibility for the group audit engagement and its performance. In this setting, it’s important that the group auditor remains calm and stable to challenge and persuade component auditors to increase group audit quality. Self-esteem is a relevant personality trait in this setting because it represents inner calmness, feelings of self-worth, and a belief in one’s own abilities (Hurtt, 2010). As such, self-esteem is an important personality trait when reviewing the work performed by others (i.e., component auditors). Review actions are the group auditors next steps after reviewing the findings of the component auditor.

The perspective-taking prompt is additionally important as this is an intervention which leads to one expressing 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 prompt activates the innate characteristics related to their higher level of self-esteem. Thus, this perspective-taking prompt is a situational characteristic that has the potential to enhance group audit quality.

The findings show that auditors with higher self-esteem plan more effective next steps after reviewing the findings of component auditors than auditors with lower self-esteem. Thus, self-esteem is an important individual characteristic to enhance audit quality in multinational group audits. In addition, we find that auditors who are prompted to take the regulator’s perspective plan more effective next steps after reviewing the findings of component auditors than auditors who are unprompted. Finally, we find no evidence for an interaction effect between self-esteem and regulator’s perspective-taking on group auditor’s review actions. Thus, both self-esteem and regulator’s perspective-taking enhance group audit quality separately, not jointly.

The findings of our study are important for auditors who are involved in multinational group audits because we find evidence that both individual and situational characteristics can enhance the quality of these audits. Audit firms can use these findings in several ways. First, they can appoint group auditors based on their level of self-esteem. Second, they can implement firm policies to use regulator’s perspective-taking prompts when reviewing the work of component auditors. Third, they can include these individual and situational characteristics in their training curricula to develop awareness of these characteristics in multinational group audits.

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