When do auditors whistle-blow on themselves?

What is it about?

While professional standards instruct auditors to report their errors, auditors have incentives to withhold information about mistakes because they are protective of their professional images. We examine these conflicting pressures by investigating the effects of mistake significance and superiors’ historical reactions to mistake admissions on the likelihood that staff auditors will admit mistakes. We find an interaction suggesting that staff auditors are more likely to admit errors when their superiors have reacted positively, regardless of error significance. Conversely, staff auditors are less likely to admit apparently insignificant errors when their superiors have reacted negatively to prior mistakes.

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Why is it important?

The procedures performed by staff auditors are a critical component of the audit process because they provide the foundation of the audit and staff auditors could jeopardize audit opinions if they do not communicate errors. Understanding the environment in which auditors will freely admit to their own mistakes will help improve audit quality.