The Role of Auditor Skepticism in Detecting Financial Statement Misstatements and Irregularities

Posted: Aug 26, 2021

• Audrey James
• Ezra Porter
• Camila Barnes

Abstract

The detection of financial statement misstatements and irregularities represents a fundamental challenge in the accounting profession, with significant implications for capital market efficiency, investor protection, and corporate governance. While extensive research has examined various technical aspects of audit procedures, the cognitive and behavioral dimension of auditor skepticism remains inadequately understood despite its recognized importance in professional standards. Professional skepticism is universally acknowledged as essential for audit quality, yet it persists as an abstract concept without robust measurement frameworks or empirical validation of its operational mechanisms. This research addresses this critical gap by developing and validating a comprehensive methodology for quantifying auditor skepticism and establishing its causal relationship with detection effectiveness. Traditional audit research has predominantly focused on procedural compliance, sampling methodologies, and technological tools, often treating skepticism as an inherent personality trait rather than a measurable and developable professional competency. This limitation has constrained both theoretical understanding and practical applications in audit practice. Our research challenges this conventional approach by proposing that skepticism operates as a multidimensional construct that can be systematically measured, analyzed, and enhanced through targeted interventions.