Are anti-social auditors better at their work?

For some corporate managers, auditors, who are charged with expressing an opinion on a company’s financial statements, are considered an adversary. Among regulators, however, there are concerns that auditors can become too chummy with the clients they're assessing and this relationship detracts from the auditor’s needed independence. a groundwork study forthcoming in Contemporary Accounting Research tackles both issues and finds that an auditor’s repeated interactions with a client and therefore the extent of an auditor’s antisocial tendencies have an effect on how well an auditor does their job.

In psychology, the Dark Triad refers to a trio of antisocial personality characteristics that include narcissism, Machiavellianism, and psychopathy. The study found that auditors who rank highly in these traits are less at risk of having social interactions with their clients cloud their judgment. “Auditors who measure high in what are called Dark Triad traits are immune to reductions in skepticism that come from social interaction with clients,” says Jessen Hobson of the University of Illinois, who co-authored the study with Matthew Stern of DePaul University and Aaron Zimbelman from the University of South Carolina. “We find that antisocial personalities have benefits in an exceedingly setting during which skepticism and impartiality are important.”

The researchers first tackled the subject with a laboratory experiment that involved students engaged in an economic game. Students took the role of either a manager who was motivated to report aggressively or an auditor with the inducement to be as efficient as possible or use the smallest amount amount of effort necessary to detect the manager’s aggressive reporting. The experiment manipulated the extent of interaction between the manager and therefore the auditor and measured the auditors on the Dark Triad traits. “We saw that prime Dark Triad auditors’ lack of empathy led them to be unaffected by social interactions with the manager. Time after time, their skepticism was undiminished,” Hobson says.

On the opposite hand, lower Dark Triad auditors placed unjustified trust in managers when social interactions were higher. However, after observing management misreporting, lower Dark Triad auditors increased their skepticism and were more likely to rein in earnings management.

The study’s next task was to work out if these findings found in a very laboratory extended to a contextually rich experiment with practicing auditors as participants. This second experiment asked practicing auditors to guage the trustworthiness of a hypothetical manager and also the appropriateness of his accounting treatment when social interaction was high because of a shared background and interests. Again, the researchers measured the practicing auditors on the Dark Triad traits.

Like the laboratory experiment, the researchers observed that auditors higher on the Dark Triad scale were consistently skeptical when confronted with aggressive reporting. Lower Dark Triad auditors were more trustworthy initially, but after being stung once with misreporting, bounced back and were more skeptical going forward. “Overall, our research suggests that concerns over auditor skepticism being dulled by social interactions with their clients is also overstated. Auditors who are higher on the Dark Triad are consistently effective as watch dogs. While lower Dark Triad auditors is negatively influenced by social forces, this effect ceases after they become knowledgeable of any misreporting by management,” Hobson says. “The lower Dark Triad auditors recovering and reducing their trust after being misled was an expected but comforting development.”

Hobson believes audit firms may benefit from formal evaluations of their employee’s personality traits just like the Dark Triad et al. “Firms could then consider employees’ lack of empathy in staffing audits with especially risky, persuasive, and demanding clients. Of course, to take care of client relations it should even be important to balance the audit engagement team with auditors who are lower on the Dark Triad.”