An Empirical examination of antecedents to Chinese auditors' judgments of professional scepticism from cultural and personality perspectives

Professional scepticism (PS) has been widely recognised as the cornerstone of audit quality and the foundation of the profession, and remains one of the most important and underexplored topics in auditing. This dissertation makes theoretical, methodological and empirical contributions to the literature on PS by examining various antecedents to auditors’ sceptical judgments in the Chinese context. China is selected for examination because there have been calls for studies to provide richer and deeper understanding of auditors’ judgment and decision making (JDM) beyond Anglo-American cultural settings. The Chinese core cultural values, which emphasise collectivism, interdependence and harmony within hierarchy, substantially differ from the individualist and independent cultural values dominant in Anglo-American countries. Specifically, the aim of this dissertation is to provide empirical evidence on various antecedents to Chinese auditors’ sceptical judgments by taking into account relevant cultural values and within cultural differences in individual auditors’ personality. This aim is attained by three papers comprising the dissertation, which empirically examine the influence of various antecedent factors on Chinese auditors’ sceptical judgments, namely self-construal, partners’ views, and peer pressure respectively. The first paper provides empirical evidence on the influence of a relevant personality variable, namely, self-construal on sceptical judgments. Self-construal has been selected because this variable captures complex cognitive processes experienced by individuals and is fundamental in explaining individual differences at both cultural and personality levels. Self-construal is broadly classified into two categories: independent and interdependent self-construal. Independent self-construal emphasizes autonomy, uniqueness, assertiveness and independence from others, whereas interdependent self-construal emphasizes belonging, fitting in, conformity, connectedness and harmony with others. This study examines how Chinese accounting students in two distinctive learning and cultural environments, Australia and China, are likely to differ in their self-construal, and how these differences may influence their sceptical judgments. Final year undergraduate accounting students have been selected as proxies for entry-level auditors because they have not been socialised and influenced by organizational cultures of audit firms. The results show that Chinese students undertaking university accounting education in Australia scored higher on measures of independent and lower on measures of interdependent self-construal than their counterparts in China. Furthermore, this study examines the influence of self-construal on sceptical judgments through two conflicting and competing perspectives, namely, auditors’ perceived relationship with client management, and auditors’ perceived relationship with their superiors. The results support the perspective based on auditors’ perceived relationship with their superiors, and show that interdependents are more sceptical than independents. It is argued that interdependents are more concerned with pleasing and maintaining harmonious relationship with their superiors. Therefore, they are more cautious and more rigorous in carrying out their audit duties in order to ensure that they are not criticized by superiors. These findings suggest that possible competing and conflicting perspectives need to be taken into account when examining sceptical judgments. The second paper further empirically examines the influence of partners’ views on Chinese auditors’ sceptical judgments. The hypotheses development based on the Chinese cultural values which emphasize the importance of submission, subordination, obedience, and loyalty towards superiors, together with social contingency theory, suggests that auditors are likely to be under intense pressure to align their judgments with partners’ views. A between-subjects experiment was conducted with practicing auditors in two local and two Big 4 audit firms operating in China. This study contributes to the literature by providing evidence that both a high partner emphasis on PS and unknown views of partners, lead to higher levels of auditors’ scepticism, and that a low partner emphasis on PS leads to lower levels of scepticism. Furthermore, this study measures the intensity of auditors’ perceived pressure, and examine the influence of such pressure on auditors’ sceptical judgments. The results show that a high (low) intensity of perceived pressure strengthens (weakens) the influence of partners’ known views on their sceptical judgments of auditors. The third paper empirically examines the importance of peer pressure relative to trait scepticism in influencing Chinese auditors’ judgments of professional scepticism. Prior studies predominantly from individualist and independent cultural contexts of Anglo-American countries provide strong evidence on the influence of trait scepticism on sceptical judgments but inconclusive evidence on the influence of peer pressure. This study extends the literature by providing evidence that peer pressure is of greater importance than trait scepticism in influencing Chinese auditors’ sceptical judgments. The findings from a between-subjects experiment suggest that in the Chinese cultural context, the influence of peer pressure overrides the influence of trait scepticism on auditors’ sceptical judgments. Additionally, prior research shows that auditors’ judgments are influenced by peer pressure in Indonesia, but not in the US, which provides contradictory evidence on the influence of peer pressure on auditors’ judgments between individualist and collectivist cultural settings. This study further contributes to the literature by showing that peer pressure influences auditors’ sceptical judgments in China, a collectivist cultural setting. The findings of this dissertation have implications for cross-cultural audit research, both international and national standard setters, as well as audit firms either operating in China or employing auditors with Chinese cultural background. Particularly, the findings of this dissertation suggest that attention needs to be given to cultural and personality factors and their dynamic interrelations in influencing auditors’ JDM and PS. Importantly, this dissertation suggests that contextual factors cannot be ignored in examining auditors’ JDM and caution needs to be exercised when generalising findings from individualist to collectivist cultures. While it has been recognised that PS may be influenced by various factors at the firm level, engagement level and individual level, very little attention has been paid to cultural contexts associated with PS. As such, there is a need to stress the importance of understanding PS in its cultural context. Overall, the findings of this dissertation suggest that greater insights into auditors’ PS and JDM from both cultural and personality perspectives may assist in enhancing quality and consistency in audit practices within and across countries, particularly in response to the international convergence of auditing standards as well as the growing cultural diversity in audit firms.