Rudeness is hurting auditors’ ability to protect the public — here’s how

Auditors play a crucial role in keeping the financial system honest. Their job is to protect investors by making sure financial reports are accurate and trustworthy, helping people have confidence in financial markets.

Auditors are trained to be level-headed, impartial watchdogs that remain skeptical when evaluating evidence so they can give an objective opinion on whether a company’s financial statements are fairly reported.

Without auditors, the public would struggle to trust what companies say about their finances. But this, of course, depends on auditors doing their jobs objectively and consistently.

Our new study, co-authored with Tim Bauer from the University of Waterloo and Sean Hillison from Virginia Tech, shows something unexpectedly human gets in the way of auditors doing their job well: incivility, or rudeness. When clients snap at, dismiss or belittle auditors, it doesn’t just sting—it can wear away at audit quality.

Maintaining audit quality

The quality of audits has become a growing concern among regulators. In recent years, both Canadian and American audit watchdogs have reported concerning rates of audit deficiencies.

These deficiencies include failing to properly test accounting estimates by firms, failing to test key controls that prevent errors or fraud and overlooking whether management’s significant assumptions were reasonable.

Regulators are urging auditors to “step up” by doing a better job of scrutinizing their financial statements.

Understanding and addressing how client incivility affects auditor performance could be a crucial step toward improving audit quality in financial reporting.

When rudeness gets in the way

To find out how often auditors face incivility, my co-researchers and I surveyed 70 auditors across Canada and the United States at all ranks, from entry-level auditors to auditors at the partner level.

We defined incivility as minor disrespectful actions that break workplace norms of mutual respect. These behaviours are often rude and discourteous, displaying a lack of regard for others.

Seventy-seven per cent said clients had rudely told them how to do their jobs or questioned their procedures. More than 60 per cent had their skills or abilities questioned and more than 50 per cent had been ignored or faced hostility when approaching a client. One-third reported being bullied—a more serious form of incivility—at some point in their career.

Rude clients, weaker audits

We wanted to know whether auditors’ experiences with incivility actually affected auditors’ judgment and skepticism. Did auditors brush off rude behaviour and continue to diligently do their work?

To test this, we ran an experiment with 114 experienced auditors. We asked them to read a scenario showing an interaction between an auditor and their client. In one version the client was openly rude, while in the other version, the client was not portrayed as rude.

The auditors were then asked how likely they would be to challenge an aggressive accounting choice—that is, a decision by the client to report a preferred inventory write-down amount supported by weak assumptions.

We found that auditors who read about a scenario with an uncivil client became less likely to challenge an obviously aggressive accounting choice by the client—the opposite of what auditing standards call for in a situation where skepticism matters.

Why did this happen? Our findings suggest that emotional distress from interacting with the rude client interfered with auditors’ judgment, leading to less effective scrutiny of the client’s decisions.

How active coping can help

Auditors play a vital role in protecting investors and the public by ensuring that companies’ financial statements can be trusted. Our findings suggest that something as commonplace as everyday discourtesy can have very real, negative effects on audit quality.

But there is some good news. Our research also found that the right coping strategies can help auditors recover their focus.

By contrast, passive approaches, such as venting or trying to accept the situation, didn’t show the same clear benefit.

Together, these results suggest that client incivility triggers emotional distress that blunts auditors’ judgment, and that active coping helps auditors refocus on the facts and their duty to the public.

Protecting audit quality

For firms and regulators trying to maintain audit quality, negative behaviour from clients should be treated as a risk factor, not a normal, everyday inconvenience. If left unaddressed, persistent rudeness or pressure from clients can undermine auditors’ ability to do their jobs.

Fortunately, the solution is simple and low-cost. Audit firms can equip auditors with concrete coping playbooks and train them to use active coping when they encounter incivility. Rather than expecting auditors to grin and bear rude treatment, firms can equip them to address incivility actively by bringing in a senior member who can handle the rude client.

It’s a simple step that helps prevent audit quality from slowly deteriorating, and protects the integrity of financial reporting and the people responsible for upholding it.

This article is republished from The Conversation under a Creative Commons license. Read the original article.