1 Department of Entrepreneurship and Relationship Management, Faculty of Business and Social Sciences, SDU2 unknown3 Department of Entrepreneurship and Relationship Management, Faculty of Business and Social Sciences, SDU
Does Trust compromise Professional Skepticism
Abstract: Trust between auditors and their clients is commonly thought to threaten auditors’ professional skepticism and thus compromise audit quality, although a systematic review of auditing literature provides an ambiguous picture. We close this gap by investigating the impact of auditors’ trust in their clients on the clients’ perceptions of their auditors’ professional skepticism. Further, we investigate the impact of auditor /audit firm tenure, non-audit services (NAS) and auditors’ confidence in their clients. We employ a two-study design. First, in a qualitative study conducted among auditors and clients, we identify their subjective theories of trust and discuss them against the backdrop of recent trust research to develop four hypotheses. In the second study, the hypotheses are tested in an OLS regression based on data from 218 auditor-client dyads in Germany. Then, our interpretations of the qualitative results are discussed with auditors, clients, policy makers and researchers via a moderated online forum. We find that close relationships between auditors and their clients do not compromise the perceived professional skepticism of auditors per se, but monetary ties and over-reliance on the clients’ abilities do. The long-term engagement of the audit firm and relationships characterized by strong identification-based trust, however, contribute to a climate of professional skepticism. Besides the theoretical contribution, the practical implications of our findings for (re)designing the regulations for auditing are discussed.