Auditors’ perceptions of alternative performance measures – alternative truths and professional skepticism

ABSTRACT

Alternative performance measures (APMs) may increase uncertainty and perceived risks concerning the audit, and rouse the auditor’s professional skepticism (PS), for example in case the APMs and official reporting diverge (e.g. one shows a profit and the other a loss). In this paper, using a survey of Finnish certified public auditors (N = 220), we study how auditors perceive relationships between audit work, PS, and APMs. When examining PS, we use both personal ‘trait skepticism’ and case-specific ‘state skepticism’. Our results show that state skepticism related to APMs can explain skeptical behavior and that it is a separate component from trait skepticism. Both state skepticism and considerations of the usefulness of APMs are helpful in assessing audit evidence and accounting figures. Further, we find that auditors hold various views of APMs and that ‘search for knowledge’ and ‘questioning mind’ are key dimensions of PS in coping with APMs.

KEYWORDS:

• professional skepticism
• state skepticism
• alternative performance measurement
• audit

Acknowledgements

The authors would like to thank the anonymous reviewer and the editors for their valuable support and comments. Further, we thank the survey respondents for their answers, and we are grateful for the comments received in EUFIN 2022 Lisbon and in EAA 2022 Bergen.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 In addition, attitudes or feelings of auditors have been regarded as potential components of skepticism (Nolder & Kadous, 2018), but personal feelings or emotions are largely beyond the scope of this research.

2 According to Jensen (1993), four control forces affect corporations: the capital markets, the legal/political/regulatory system, the product and factor markets, and the internal control system headed by the board of directors. There are risks and problems however in control systems, such as asymmetry of information (ibid.). Auditing obviously relates to capital markets and to the regulatory systems, but stakeholder views are not necessarily coherent and may include alternative viewpoints. Alternative viewpoints may also relate e.g. to the various forms of sustainability and tax reporting and auditing such reports (see e.g. Klimczak et al., 2023; Mura, 2023).

3 Additionally, in Finland, there is a specialization degree, JHT (previously called JHTT), for public sector auditors but this survey did not focus on the auditing of public sector or nonprofit organizations.