The influence of auditor narcissism and moral disengagement on risk assessments of a narcissistic client CFO |
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| Institution: | 1. Clara R. Toppan Professor of Accounting, College of Business, University of Wyoming, Laramie, WY 82071-3275, USA;2. Professor of Accounting, W.P Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;3. Professional Advisory Board Professor of Accounting, W.P Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;1. School of Business, University of Connecticut, 2100 Hillside Rd., Unit 1041A, Storrs, CT 06269, United States;2. College of Business, Colorado State University, 501 W. Laurel St., Fort Collins, CO 80523, United States;1. School of Accountancy, Central University of Finance and Economics, Beijing 100081, China;2. SKEMA Business School, 99 Ren’ai Road, Suzhou 215123, China;1. Department of Accounting, Box 8113, North Carolina State University, Raleigh, NC 27695-8113, United States;2. Department of Management, Ca’ Foscari University, Cannaregio 873, 30121 Venice, Italy;1. Tampere University, Faculty of Management and Business, 33014 Tampere, Finland;2. University of Vaasa, P.O. Box 700, 65101 Vaasa, Finland;3. The University of Auckland Business School, 12 Grafton Road, Auckland, Private Bag 92019, Auckland 1142, New Zealand;1. Data & Text Mining Laboratory, Jerusalem School of Business Administration, Israel;2. Rutgers Business School – Newark and New Brunswick, Rutgers University, Department of Accounting and Information Systems, United States;3. Stern School of Business Administration, New York University and, QMA LLC, United States;4. Freeman College of Management, Bucknell University, United States;1. Oregon State University, United States;2. Purdue University, United States |
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| Abstract: | Global capital markets rely heavily on independent and skeptical auditors as gatekeepers to provide assurance that corporate financial reports are free of material fraud. The rise of narcissism among the ranks of both client and audit professionals challenge this gatekeeper function. In addition, auditor moral disengagement may undermine auditor skepticism, further eroding public confidence in the integrity of financial reporting and the audit process. We conduct a quasi-experiment with 118 auditors from three international audit firms. In a simulated interview with a client CFO, we examine whether auditors underestimate risks of fraudulent financial statements due to the interactive effects of (1) client narcissism (manipulated verbally and nonverbally) and (2) auditor narcissism. We also examine the influence of auditor moral disengagement on client risk assessments. Results indicate that CFO verbal and nonverbal narcissism significantly influenced auditors’ assessment of management-related client risk. Moreover, auditor narcissism was found to interactively influence client risk inferences such that auditors higher in narcissism exhibited narcissistic tolerance (lower risk assessments) when the hypothetical CFO displayed high verbal narcissism. Auditor moral disengagement was negatively associated with client risk assessments. We discuss the implication of these findings on future audit judgment research, audit firm policy and training on maintaining auditor skepticism, and the audit oversight role of standard-setters. |
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| Keywords: | Auditor narcissism Client narcissism Risk tolerance Moral disengagement Skepticism |
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