Does imitation pay when auditing companies?

Despite their thorough preliminary training, junior accountants often lack the knowledge and experience required to apply the law and auditing standards correctly in practice. That is why they are supervised during audit assignments by an experienced senior who gives them coaching. What role does imitation play in the relationship between the junior and senior accountant? Professor Kristof Stouthuysen and Professor Olof Bik, the managing director and scientific board member of FAR (the Foundation for Auditing Research), explain.

Science and practice

FAR is a Dutch collaboration between the academic world and the accounting profession. The ten largest accounting firms in the Netherlands jointly finance the activities of the foundation, which is celebrating its fifth anniversary this year. FAR's main objective is to substantiate the accounting profession scientifically, or in other words to make it evidence-based. “The foundation does this by supporting independent academic research into the factors that determine audit quality, and then by sharing the knowledge and insights gained to inform the public debate and public policy. There are currently 25 projects underway,” says Olof. “The research is outsourced to the best scientists all over the world. The affiliated accountants give the research teams access to data from their files and information systems and participate in surveys, experiments and interviews.”

“FAR is a unique initiative,” says Kristof enthusiastically. “As a scientist, you can only dream of carrying out research on real practical data with professional auditors. That is why we are particularly honoured that FAR was willing to finance our project.”

Research in three parts

Every year, FAR’s scientific council draws up a research agenda and organises an international call for projects. One of the projects selected in 2018 belonged to Professor Eddy Cardinaels, Evelien Reusen and Kristof Stouthuysen, examining how the internal and external interactions of auditors influence their judgement and decision-making and which factors are significant for the quality of the audit. The project runs for four years and consists of three parts. The first examines when juniors are inclined to imitate their senior colleague and what impact the promotion system has on this imitation behaviour and the quality of the audit. Evelien and Kristof had already conducted research into the role of imitation in the choice of management control systems and supply chain partners, thus introducing the concept of imitation into accounting. The results of the first part of the project were presented in June at an online master class organised by FAR and summarised in a working paper.

Four scenarios

The research focuses on a particular experiment, a scenario-based business case in which 138 junior accountants working at the Big Four accountancy firms participated. They received a senior auditor’s working documents for the valuation of a business unit. The juniors were asked to value a different business unit belonging to the same company. The working documents reflected the senior's working style. One group of participants received documents from a senior with a professional and critical working style (high diligence), another group from a senior with a less professional and critical working style, a commercially driven accountant (low diligence). The working documents also included a character sketch of the senior accountant and information about the influence of his or her opinion on their future promotion. This played a decisive role for one group and not for the other1. The extent to which the participants emulated the senior's approach, working style and opinion was examined. The solution used for valuation was taken as a measure of the audit quality. The research team also collected information about the background of the participants and their personality traits.

Healthy dose of scepticism

As expected, the imitation behaviour of juniors is influenced by both the senior's working style and by the promotion system:

  • Juniors are more inclined to imitate a senior if the latter has a professional and critical working style, especially if he or she has a decisive influence on their promotion. Juniors are less inclined to imitate a senior with a less professional and critical working style.
  • The promotion system only stimulates imitation behaviour where the senior has a professional and critical working style; it has hardly any effect where the senior with a working style that leaves something to be desired. “This is encouraging,” says Kristof. “It shows that juniors do not blindly imitate others and that they have a healthy dose of professional scepticism.” 
  • In the rare cases where a junior imitated a senior with a less professional and critical working style, this did indeed have a negative impact on the audit quality, as expected. 
  • Surprisingly, however, the imitation of a senior with a professional and critical working style did not actually have a positive impact on the audit quality; on the contrary, in fact. “We are going to investigate in more detail how we can explain this effect,” says Kristof. “Is it because of the context? Could it be tunnel vision? Did they follow the example of that first business unit too blindly? I don't want to get ahead of the results, but the personality traits of the junior may play a role here.”

Setting a good example

“Accounting practice is bound by standards and rules, but what particularly appeals to me in this study is the fact it clearly shows that the quality of the audit is also determined by very human factors such as social interaction,” says Olof. “Senior accountants and managing partners need to be aware that they play an exemplary role in the training of juniors. If a partner doesn’t have the courage to ask a client critical questions, you can’t expect a junior to do so.”

“Indeed,” Kristof concurs. “And juniors must be encouraged to demonstrate a professional and critical attitude. It’s fine to follow good examples, but no assignment is ever quite the same as the one in the example. It may be a good idea to collect working documents from various seniors who adopt a professional and critical working style and to make these best practices available to juniors, so that they are not just dependent on the example provided by their coach and can see that similar problems can and must be addressed in different ways.”

To be continued

Olof concludes with a look to the future: “In the second part of the project, we will be looking at the factors that influence herd behaviour and their impact. In teams, there is always a risk of ‘groupthink’. If one of the team members finds a mistake but doesn’t have the courage to report it because he or she would then be breaking with the consensus, this could be problematic. It is important for us to gain insights into the extent to which imitation and herd behaviour take place and their effect on the quality of the audit,” he concludes.

Would you like to find out more?
The working paper can be requested from the authors.

About the authors

Eddy Cardinaels is a Professor of Accounting at Tilburg University and KU Leuven. Viola Darmawan is a doctoral researcher at KU Leuven. Evelien Reusen is an Assistant Professor in the Department of Accounting and Control at Rotterdam School of Management. Kristof Stouthuysen is an Associate Professor of Accounting and Control at Vlerick Business School and Professor of Management Accounting at KU Leuven.

1 As a result, there were four groups: (1) working documents of a senior with high diligence + decisive vote in promotion, (2) working documents of a senior with high diligence + non-decisive vote in promotion, (3) working documents of a senior with low diligence + decisive vote in promotion and (4) working documents of a senior with low diligence + non-decisive vote in promotion.

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