Behavioural propensities and their impact across diversity in the audit sector: an empirical study on behavioural biases and their impact on the risk perspectives between races, genders, and experience levels in South Africa.

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2022

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Tsosane, Kamohelo

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Abstract

At its core, audit and assurance is a product of the decision making and professional judgement of its practitioners. Guided by a largely principle-based regulation, the auditor obtains and evaluates sufficient and appropriate evidence, by applying their professional judgment to make informed decisions and interpret standards that are vital to the audit process (Kutluk , 2017; Weirich , et al., 2012). The ensuing opinion over the fairness of financial statements, is a function of critical thinking, due professional care, and ethics. Notwithstanding, behavioural accounting studies have shown the effects of heuristics, cognitive biases, and potential inefficiency toward making a neutral and sound judgement. This research aims to analyse the impact of unconscious biases amongst auditors. It examines the behavioural propensities of auditors, the impact of individual personal characteristics on risk perspective and the overarching influence that auditor behaviour could have on audit quality. An experimental study was developed to study the outcomes provided by auditors of different personal characteristics. The author investigates this by conducting a research review on risk perception in behavioural accounting studies, which reveals that behavioural biases that are influenced by different personal attributes such as gender, culture, and age, can influence the judgement of auditors. This phenomenon can result in differing risk perspectives, and information interpretation that ultimately impact ‘defined audit quality’. Thus, exacerbating the diverging viewpoints on the appropriate audit performance, audit objectives and litigation risks within audit engagements. The treatment of risk by different auditors in a principle-based auditing regime can result in differing audit decisions, which may be perceived as deficient. This study contributes to the works on the audit expectation gap, which widens as the performance of auditors may not always align with the expectations of society and regulators, as they often have to balance audit quality with reducing the scorn and disparagement that has been cast on the profession. Building on these principles, this research made use of a deductive approached that involved an adapted online questionnaire. The intention is to ascertain whether the level of experience, gender, and racial background of individuals in South Africa can affect financial and risk decisions. A total of 154 volunteer participants contributed to the development of this research. The survey was distributed to auditors in South Africa, and by using ANOVA analysis, statistical findings are observed to explain how hidden biases can affect risk perspective. It can be concluded that behavioural biases do impact the decisions undertaken by individuals and that there is a general indication that the personal characteristics of individuals will impact decisions. The study posits that there is a strong correlation between behavioural biases, personal characteristics, and risk perspective. In particular, the results of the report suggest that there is a strong positive relationship established between females, loss aversion and risk aversion. Whilst a strong positive relationship was identified between men, overconfidence, availability, and anchoring biases. Moreover, a conclusion can be made on the relationship between cultures and collectivism-individualism. The results suggest that collectivistic cultures are more risk averse than individualistic cultures. On the other hand, individualistic cultures are highly subject towards overconfidence, availability, and anchoring biases. Across a variety of experience levels, the study found a low impact of risk and loss aversion on all levels of experiences between South African auditors. However, a lower experienced individual is highly subject to anchoring and availability biases.

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A research report submitted in partial fulfilment of the requirements for the degree of Master of Commerce (Accounting) to the Faculty of Commerce, Law and Management, University of the Witwatersrand, 2022

Keywords

Audit expectation gap, audit quality, Behavioural accounting, Behavioural bias, Professional judgement, Risk perception, UCTD

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