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PhD Defense C.P.H. Peters MSc

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The Microfoundations of Audit Quality

The three essays collected in this dissertation relate to the microfoundations of audit quality. The first essay shows how auditors prioritize easy tasks and how this affects their judgment performance, and by extension audit quality. The second essay deals with how auditors learn in the workplace. The third essay investigates how auditors’ usage of automated tools and techniques affects their professional skepticism. Together, these essays shed light on how individual auditor behaviors, judgments, and decision-making can impact audit quality. By examining auditing from an operational perspective, these findings provide a more realistic understanding of the complexities of modern audit engagements and shed light on the microfoundations of audit quality. As regulators and policymakers continue to express concerns about audit quality, these studies offer actionable interventions that can help improve audit quality.

Christian Petrus Hendrikus Peters (Nijmegen, 1994) graduated from Tilburg University with a BSc in International Business Administration, a MSc in Accountancy, and a MPhil Research Master in Business. He started his PhD in Accounting in 2019 and spent part of his PhD as visiting researcher at Emory University in The United States. After his PhD, he will join Nanyang Technological University in Singapore as an Assistant Professor in Accounting.

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The auditor is the trusted advisor of the public and is responsible for verifying whether the financial statements presented by companies do not materially deviate from generally accepted accounting principles. In the past decade, there has been a lot of criticism on the auditing profession. This criticism stems from accounting scandals and the often-associated failures of auditors, such as the failure of Arthur Andersen in auditing Enron or the failure of EY in auditing Wirecard. This raises the question of what leads to high-quality audits.

Although the detected failures of auditors often have significant consequences for the accounting organization, this failure often stems from evaluations and decisions made by individuals or a group of auditors. Examples are a lack of professional skepticism, a lack of independence, or taking the path of least resistance. In this dissertation, Christian Peters investigates the evaluations and decisions made by individual accountants and the operational factors in accounting organizations that play a role in them. These form some of the microfoundations of audit quality.

The first operational factor considered is which audit tasks accountants prioritize and which ones they postpone. This is important because an audit often takes place under time pressure. As a result, tasks are sometimes not fully completed, or in some cases even documented away. In the first essay, Peters, together with his supervisor Dierynck, demonstrates through an experiment that accountants are more inclined to prioritize easy audit tasks and postpone difficult tasks, or not complete the latter entirely. The first paper also shows that this has a negative effect on audit quality.

Recent analyses of the accounting profession indicate that the technocratic aspects of the profession often hinder learning and innovation. In the second paper, Peters, together with his supervisors Dierynck and Kadous, conducts a literature review on how accountants learn within accounting organizations. The authors develop a framework, make suggestions on how audit organizations can promote learning, and raise research questions for future research.

Inspections by international regulators of accounting organizations show that a lack of professional skepticism is often a reason for deficiencies in audit quality. In the third paper, Peters investigates how skeptical accountants are of new technologies used during audits, such as artificial intelligence. An experiment with accountants shows that accountants are less critical of structured audit tasks when they are performed by technology than when they are performed by a colleague. The research also shows that an intervention focused on a mindset characterized by counter-argumentation can reduce the negative effect of technology on the professional skepticism of auditors.

Taken together, these studies demonstrate three important operational aspects that audit organizations, regulators, and policymakers can take to heart to improve audit quality.