Assessing the Influence of Auditor Professional Skepticism on Fraud Detection Rates in Public Firms

Posted: Nov 16, 2021

• Cooper Hall
• Molly Ortiz
• Gracie Turner

Abstract

This research investigates the critical relationship between auditor professional skepticism and fraud detection effectiveness in public companies, employing a novel methodological framework that combines behavioral psychology, machine learning analysis, and experimental auditing scenarios. Unlike previous studies that primarily rely on survey data or archival analysis, our approach develops a multidimensional skepticism assessment instrument that captures both cognitive and affective components of professional skepticism across different audit contexts. We conducted a comprehensive study involving 342 practicing auditors from diverse firm sizes and experience levels, exposing them to carefully constructed audit scenarios with embedded fraud indicators of varying subtlety. Our findings reveal several groundbreaking insights: first, that professional skepticism operates as a non-linear function rather than a simple continuum, with distinct threshold effects that dramatically impact fraud detection rates; second, that contextual factors including time pressure and client relationship dynamics interact with individual skepticism traits in previously undocumented ways; and third, that traditional skepticism training methods may inadvertently suppress the very cognitive processes most critical for fraud detection. The results demonstrate that auditors exhibiting what we term 'adaptive skepticism'—characterized by context-sensitive questioning and pattern recognition flexibility—achieved fraud detection rates 47