The effect of scepticism, self-construal, and self-esteem on auditors' ethical judgments and ethical intentions in an auditor-client conflict situation

Because auditor ethicality is important in discouraging fraudulent or misleading financial reporting that may adversely affect various stakeholders,the accounting profession and regulators internationally are focusing on enhancing auditors' Ethical Decision-Makings (EDMs). Prior research has demonstrated that auditors' EDMs involve a cognitive process that is influenced by external factors such as the auditing standards, professional codes of (ethical) conduct, and the quality control policies of audit firms. However, more recent research has identified that auditors' EDMs are influenced by individual factors, including the personality traits,and has called for further research to examine the impact of auditors' personality on their ethical judgments and ethical behaviours. This thesis seeks to answer this call by identifying three important personality traits,namely scepticism (dispositional distrust), self-construal, and self-esteem, and examining whether those traits affect external auditors' ethical judgments and ethical intentions in a situation of conflict with a client management.The thesis uses a survey questionnaire, completed by a sample of 58 auditing practitioners in Australia, to gather data on the auditors' ethical judgments and intentions to act ethically in a situation of conflict with a client over a materiality assessment and financial report adjustment. The findings showthat highly sceptical auditors are more likely to make ethical judgments and ethical intentions in the situation of auditor-client conflict. The study also provides evidence that auditors who have dominant independent self-construal are more likely to make ethical intentions in the situation of conflict. Although the study's findings did not provide support for a significant effect of self-construal on auditors' ethical judgments, additional analyses provided evidence that auditors with dominant independent self-construal demonstrate significantly high levels of ethical judgments in the conflict situation if they were, at the same time, high on scepticism. While findings did not provide support for a significant effect of self-esteem on auditors' ethical judgments, the findings suggest that self-esteem is negatively related to auditors' ethical intentions. However, it is argued in this study that a sufficient/accurate (but not high or low) level of self-esteem is likely to be more useful for auditors' ethical decision-makings in a context of auditor-client conflict.These findings suggest, overall, that personality traits are potentially important factors promoting auditors' ethically and professionally acceptable decision-making in conflict situations with audit client management. The findings provide insights for the auditing profession and audit firms in assessing and/or enhancing auditors' ethical judgments and ethical behaviours from the perspective of the auditors' personalqualities.