Although auditors are responsible for detecting misstatements arising from either error or fraud, the auditing standards require very different audit responses when a misstatement is believed to be the result of an intentional act (AS No. 14, PCAOB 2010a). Specifically, if auditors suspect intentional misstatement, then they should perform additional audit procedures, reassess overall fraud risk and the integrity of management, and communicate potential concerns to the audit committee. Thus, if auditors fail to recognize and respond to information indicating a misstatement was caused intentionally, then audit quality may be impaired. The objective of this study is to investigate whether auditors who consider the perspective of the manager responsible for a misstatement's occurrence are more sensitive to circumstances indicating the misstatement was intentional. Using an experiment with audit managers and senior managers, I find that auditors who consider the client manager's perspective assess the misstatement as significantly more likely to be intentional when circumstances surrounding it indicate high, as opposed to low, fraud risk. In contrast, auditors who do not consider the client manager's perspective do not assess intentionality any differently, regardless of the level of fraud risk.Keywords: perspective taking; fraud risk; fraud detection; misstatement; audit quality. different audit responses than in the case of an isolated error. According to AS No. 14, when auditors believe that a This paper is based on my dissertation completed at the University of South Carolina. I thank my dissertation chair, Scott Vandervelde, for his time and guidance, and my committee members, Marsha Keune, Brad Tuttle, and Douglas Wedell, for their valuable feedback. I am also very grateful to Joel Owens for his assistance in coding data. I appreciate comments received from 11 The wording of the Perspective Taking manipulation is consistent with perspective-taking studies in psychology, which instruct participants to imagine themselves in another's shoes and consider their own thoughts and feelings under the circumstances facing another (e.g., Davis et al. 1996;Galinsky and Moskowitz 2000;Mallett et al. 2008). 12 Furthermore, studies in psychology suggest that perspective taking is an effortful process, which can be inhibited when there are high demands on one's cognitive resources (e.g., Davis et al. 1996). The present study includes substantially more information for participants to evaluate compared to the typical psychology study. Thus, demands on participants' cognitive resources are likely to be greater.
