The Impact of Client Error-Management Climate and the Nature of the Auditor-Client Relationship on External Auditor Reporting Decisions

Abstract

An important aspect of an organization's tone at the top is its practices for correcting the behavior of employees who deviate from set corporate policies and procedures (COSO 2013). Collectively, these practices are often referred to as an organization's error-management climate (EMC). We investigate whether a client's EMC can lead to behaviors that could reduce audit quality. We conduct an experiment and find that when a client's EMC is error averse (i.e., where employees are sanctioned for committing errors), external auditors indicate that client employees' errors discovered by the auditor are less likely to be reported. In addition, we examine the joint impact of the nature of the auditor-client relationship and EMC on auditor reporting. We find perceptions of reporting likelihood to be lower when the auditor is described as having a positive interpersonal relationship with the client employee responsible for the error. In addition, we find that this factor interacts with client EMC so as to exacerbate the observed reluctance to report when the climate is error averse. Our results provide initial evidence to suggest that an organization's EMC may impact auditor behaviors that could lead to reduced audit quality. Data Availability: Upon request.

The copycat effect: do social influences allow peer team members' dysfunctional audit behaviors to spread throughout the audit team?

“…This approach is consistent with prior research (e.g. Stefaniak and Robertson, 2010;Perreault et al, 2017;Nelson and Proell, 2018) that attempts to reduce the social desirability bias present in the decision-making process (Sherwood, 1981;Fisher, 1993;Chung and Monroe, 2003) and the likelihood of individuals overestimating the likelihood that they would behave more ethically than others in their current position (Epley and Dunning, 2000).…”

“…In addition, both Jimmy would behave, rather than how the participants themselves would behave. This approach is consistent with prior research (e.g., Stefaniak and Robertson 2010;Perreault, Wainberg, and Luippold 2017;Nelson and Proell 2018), which attempts to reduce the social desirability bias present in the decision making process (Sherwood 1981;Fisher 1993;Chung and Monroe 2003),…”

“…This approach to selecting the sample alters the procedure from selecting the sample from the entire population to selecting the sample from just a subsection of the population. This approach is indicative of selecting the sample for potentially less problematic items, which has been found to be a frequently occurring audit quality reducing DAB, since it is unlikely to be caught as it is not something that would be included in the audit workpapers/documentation (Willett and Page 1996;Pierce and Sweeney 2004;Perreault et al 2017).…”

“…This approach is indicative of selecting the sample from a sub-sample of the complete population, potentially including only the less problematic items. This practice has been found to be a frequently occurring audit quality reducing DAB that is unlikely to be caught as it is not something that would be included in the audit workpapers/documentation (Perreault et al, 2017;Pierce and Sweeney, 2004;Willett and Page, 1996). In contrast, in the DAB absent condition, a peer team member states he is almost done testing his controls, because he is waiting for some documentation from the client, as the selected control month was not uploaded to the PBC portal.…”

Vers une approche contextualisée de la mise en œuvre du droit à l’erreur

“…Dans une première approche (error prevention culture) -la plus courante au sein des organisations, quoique généralement inconsciente (van Dyck et al, 2005) -aucun droit à l'erreur n'existe pour les individus dans le but de préserver l'organisation. Du fait de cette tolérance-zéro, l'erreur est blâmée, voire même souvent sanctionnée, au moins de façon informelle (Goodman et al, 2011 ;Perreault et al, 2017 ;Provera et al, 2010 ;van Dyck et al, 2005). Très surveillés, les individus sont dissuadés de reconnaître et de partager leurs erreurs auprès de leur hiérarchie, de peur de perdre la face (Frese et Keith, 2015 ;Perreault et al, 2017 ;van Dyck et al, 2005 ;Zhao et Olivera, 2006).…”