IDEAS home Printed from
   My bibliography  Save this article

Do changes in audit actions and attitudes consistent with increased auditor scepticism deter aggressive earnings management? An experimental investigation


  • Chen, Qiu
  • Kelly, Khim
  • Salterio, Steven E.


Audits are claimed to not only enhance the detection of fraud but also the deterrence of fraud. This study examines whether different audit procedures and attitudes conveyed to management deter aggressive earnings management that may be fraudulent, and whether such different procedures and attitudes conveyed influence managers’ perceptions about the ethicality of any anticipated earnings management. In an experiment with 171 senior corporate managers, we find that compared to the condition where the audit proceeds the same as last year, managers anticipate that there would be less earnings management when the nature of evidence collected has increased probative value; and when the auditor conveys a more sceptical attitude via more critical inquiry combined with either an increase in the evidence extent (increased sample size) or the nature of the evidence. However, this reduction in anticipated earnings management is not found with either the increased extent of evidence collected alone or more critical inquiry alone, suggesting that a combination of action and attitude changes compared to a change in either action alone or attitude alone better signals to managers the heightened scepticism that enhances the effectiveness of auditor deterrence. We also find, after controlling for the underlying ethical disposition of managers, that the different audit procedures and attitudes conveyed to management affect managers’ perceptions of the ethicality of anticipated earnings management. Interestingly, the conditions that engender greater earnings management also paradoxically increase managers’ perceived unethicality of the anticipated earnings management. Together these findings have implications for how different changes in audit approaches may result in differential managerial responses about their intention to commit fraud and its appropriateness. This study is one of the first papers to provide experimental empirical evidence that specific audit actions conveying heightened scepticism have significant influence on managerial judgments and behaviours with respect to committing aggressive earnings management.

Suggested Citation

  • Chen, Qiu & Kelly, Khim & Salterio, Steven E., 2012. "Do changes in audit actions and attitudes consistent with increased auditor scepticism deter aggressive earnings management? An experimental investigation," Accounting, Organizations and Society, Elsevier, vol. 37(2), pages 95-115.
  • Handle: RePEc:eee:aosoci:v:37:y:2012:i:2:p:95-115
    DOI: 10.1016/j.aos.2011.11.001

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Peecher, Mark E. & Schwartz, Rachel & Solomon, Ira, 2007. "It's all about audit quality: Perspectives on strategic-systems auditing," Accounting, Organizations and Society, Elsevier, vol. 32(4-5), pages 463-485.
    2. Lance Lochner, 2007. "Individual Perceptions of the Criminal Justice System," American Economic Review, American Economic Association, vol. 97(1), pages 444-460, March.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    4. Knapp, Carol A. & Knapp, Michael C., 2001. "The effects of experience and explicit fraud risk assessment in detecting fraud with analytical procedures," Accounting, Organizations and Society, Elsevier, vol. 26(1), pages 25-37, January.
    5. repec:bla:joares:v:25:y:1987:i:2:p:217-244 is not listed on IDEAS
    6. repec:bla:joares:v:35:y:1997:i::p:75-97 is not listed on IDEAS
    7. Fisher, Robert J, 1993. " Social Desirability Bias and the Validity of Indirect Questioning," Journal of Consumer Research, Oxford University Press, vol. 20(2), pages 303-315, September.
    8. McCracken, Susan & Salterio, Steven E. & Gibbins, Michael, 2008. "Auditor-client management relationships and roles in negotiating financial reporting," Accounting, Organizations and Society, Elsevier, vol. 33(4-5), pages 362-383.
    9. Asare, S. K. & Wright, A., 1997. "Hypothesis revision strategies in conducting analytical procedures," Accounting, Organizations and Society, Elsevier, vol. 22(8), pages 737-755, November.
    10. repec:bla:joares:v:37:y:1999:i:1:p:167-189 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Dan Dacian Cuzdriorean, 2013. "Most Recent Findings In Earnings Management Area: Interesting Insights From Traditionally Top 5 Leading Accounting Journals," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(15), pages 1-5.
    2. Marisa Agostini & Giovanni Favero, 2012. "Accounting fraud, business failure and creative auditing: A micro-analysis of the strange case of Sunbeam Corp," Working Papers 12, Department of Management, Università Ca' Foscari Venezia, revised Mar 2013.
    3. Takahiro Endo & Nidhi Srinivas & Yuki Tsuboyama, 2017. "The Role of Meta-organising in Legitimacy Recovery: The Case of Frozen Food Category in Japan," Discussion Paper Series DP2017-10, Research Institute for Economics & Business Administration, Kobe University.
    4. Sandeep Goel, 2014. "Creating Accounting Numbers Using Designed Choices: A Case Study of Indian Hotel Industry," Accounting and Finance, Institute of Accounting and Finance, issue 3, pages 29-35, September.
    5. Pantic, B., 2016. "Comparability of financial reports: A literature review of most recent studies," Working Papers 6451, Graduate School of Management, St. Petersburg State University.
    6. Kazunori Miwa & Satoshi Taguchi & Tatsushi Yamamoto, 2017. "Are IPOs “Overpriced?” Strategic Interactions between the Entrepreneur and the Underwriter," Discussion Paper Series DP2017-07, Research Institute for Economics & Business Administration, Kobe University.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:aosoci:v:37:y:2012:i:2:p:95-115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.