When Auditors Err: How Mistake Significance and Superiors' Historical Reactions Influence Auditors' Likelihood to Admit a Mistake

Abstract

The procedures performed by staff auditors are a critical component of the audit process, and mistakes in these procedures could jeopardize opinions if they are not communicated. 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. These conflicting pressures are examined 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.