Effect of fraud risk assessments on auditor skepticism: Unintended consequences on evidence evaluation

This study examines whether auditors who learn that fraud risks differ between accounts could become less skeptical toward evidence that could signal financial misstatement in low‐fraud‐risk accounts. Our theoretical framework suggests that contrast effects could reduce skepticism about suspicious changes in low‐fraud‐risk accounts when auditors perform analytical procedures during the planning phase of assurance engagements. We conducted a laboratory experiment where experienced auditors analyzed year over year changes in accounts to assess misstatement risk for revenue and costs. We manipulated fraud risk for revenue and the presence of an inconsistent fluctuation in costs. Participants who learned that fraud risks had been assessed as high for revenue but low for costs rated misstatement risk at lower levels for cost accounts, compared with auditors who learned that fraud risk was assessed as low for both accounts.