The Effect of Knowledge Transfer On Professional Skepticism in Audit Engangement Planning

Accepted Manuscript
Knowledge management: The effect of knowledge transfer on professional skepticism

in audit engagement planning
Grace Mubako, Waymond Rodgers, Laura Hall
PII: S0747-5632(16)30898-6
DOI: 10.1016/j.chb.2016.12.069
Reference: CHB 4679
To appear in: Computers in Human Behavior
Received Date: 2 September 2016

Revised Date: 19 December 2016
Accepted Date: 28 December 2016
Please cite this article as: Mubako G., Rodgers W. & Hall L., Knowledge management: The effect of
knowledge transfer on professional skepticism in audit engagement planning, Computers in Human
Behavior (2017), doi: 10.1016/j.chb.2016.12.069.
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Knowledge Management: The Effect of Knowledge Transfer on Professional

Skepticism in Audit Engagement Planning
By
Grace Mubakoa
a
Department of Accounting and Information Systems
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College of Business
University of Texas at El Paso
El Paso, TX. 79968
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United States of America
gnmubako@utep.edu
Waymond Rodgersb
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b
College of Business
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El Paso, TX. 79968
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wrodgers@utep.edu
Laura Hallc
c
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College of Business
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El Paso, TX. 79968

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lhall@utep.edu
Corresponding Author:
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Laura Hallc
c
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College of Business
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El Paso, TX. 79968

lhall@utep.edu
*This research did not receive any specific grant from funding agencies in
the public, commercial, or not-for-profit sectors.
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ABSTRACT
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The objective of this study is to test how the transfer of auditing knowledge, along with
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other variables, work together to impact the level of professional skepticism in auditors and
answer the crucial question of how auditors competencies and expertise jointly interact with the
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knowledge transfer process. The study attempts to test these components in an empirical model,
decomposing them and showing how they affect skepticism by comparing how knowledge is
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transferred in experts as compared to novices. The results of this study show that the differences
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between the expert auditors and the novices strengthened support for the role of knowledge and
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expertise in improving skepticism in engagement planning. The results of our study illustrate that
knowledge transfer plays an important role in enhancing auditor professional skepticism, thereby
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improving the accuracy of auditor judgments. Also, as suggested by Nelson (2009), expert
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knowledge, position, and judgment were significant factors in the planning of an audit
engagement. However, trait effects (as captured by firm effects) were not significant in
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explaining auditors judgments. These results are important in that they illustrate the significance
of the role that knowledge transfer functions in facilitating auditors exercise of appropriate
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professional skepticism in audit engagement planning.

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Keywords: Knowledge management, organizational learning, knowledge transfer, decision
making, expertise, audit planning
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1. INTRODUCTION
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Knowledge management is the focus of agile organizations and research has shown that an
organizations competitive advantage is directly affected by its ability to create, identify, share,
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and apply knowledge (Alavi & Leidner, 2001; Rodgers, 2016). The economy of today requires
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organizations to use their knowledge assets to create sustainable value for the organization over
time (Gold, Malhotra, & Segars, 2001). According to Clow (2010), the ability to facilitate the
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transfer of repeatable information and skills from those who have learned it to those who need to
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learn it is critical to becoming a learning, thus agile organization. Organizations that are able
to transfer knowledge effectively from one unit to another are more productive and more likely
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to survive than those that are less adept at knowledge transfer (Argote, Ingram, Levine, &
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Moreland, 2000). Organizations that provide support for organizational knowledge activities
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find that knowledge becomes a valuable asset to the organization (Wang & Wang, 2016). It is the
transference of this knowledge through the organization that transforms organizations into
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learning organizations. Thus, the knowledge transfer process becomes an important factor in the
success of organizations that expect to survive and grow.

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Audit firms are a type of organization in which knowledge transfer is important, particularly in
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the context of audit engagement planning. Audit engagement planning research examines how
factors like auditor knowledge, experience, traits, as well as incentives influence auditor
decision-making during audit engagement planning (Hurtt, Brown-Liburd, Earley, &
Krishnamoorthy, 2013). An important factor in auditor decision-making is professional
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skepticism and this study identifies professional skepticism as an important component of
knowledge transfer. Simply defined, professional skepticism is an attitude that includes a
questioning mind and a critical assessment of audit evidence (PCAOB, 2006), a very important
element in making sound audit judgments. Audit regulatory bodies have noted that their
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inspectors continue to observe instances where auditors fail to consistently and diligently
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exercise professional skepticism during their audits, resulting in sub-optimal audit judgments,
therefore it remains a priority for researchers and practitioners to continue to identify ways to
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enhance professional skepticism among auditors (Rodgers, 2012).
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This study explores how knowledge transfer influences auditor decision-making in audit
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engagement planning. The study provides a basis for testing some useful hypotheses about the
factors that mediate auditors knowledge transfer in the engagement planning process. While
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there are studies that clearly show that expertise and knowledge transfer influence individuals
decisions (Rodgers & Negash, 2007; Tortoriello, Reagans, & McEvily, 2012), it is essential to
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understand how this happens in an auditing environment in order to improve auditors decision
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making. In addition, this study extends previous research exploring whether auditors expertise
and knowledge, position within the firm, firm type, and judgments are key indicators for
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influencing professional skepticism in the planning of an engagement (Nelson, 2009) by actually

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testing a variant of proposed skepticism models.

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The study compared knowledge transfer between expert auditors processes and novices
processes to determine how and why their decisions differed in the task of allocating audit hours
to an audit engagement based on their level of professional skepticism. We use a Throughput
Model to examine knowledge transfer as an unobservable concept (Bedard, 1989; Rodgers &
Housel 2004; Foss & Rodgers, 2011). Transference of knowledge as a construct measured by
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two proxies: training (e.g., years of experience) and ability (e.g., years the CPA certificate held)
indicators. The model is tested by comparing the judgments and planning decisions of experts to
those of novices. Professional skepticism models (see Nelson, 2009 for review) have also been
developed based on these studies but no researchers have attempted to empirically test the
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models. Some interesting causal connections emerged as a result of combining theoretical
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constructs with the empirical data in this study
We posit that this task of selecting total hours for an auditing engagement is influenced
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by auditors knowledge transfer, that is, knowledge and expertise contribute to refinement and
modification of reasoning processes to produce better judgments. The study involved auditors
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making an initial judgment of hours required to complete an actual audit engagement and then
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later making a final decision of how many hours to budget after obtaining information about the
actual hours charged.

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The results of our study illustrate that knowledge transfer plays an important role in
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enhancing auditor professional skepticism, thereby also improving the accuracy of auditor
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judgments. Expert auditors estimates of required audit hours were significantly higher than
those of novices and also more accurate. Also, as suggested by Nelson (2009), expert knowledge,
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position, and judgment were significant factors in the planning of an engagement. However, trait
effects (as captured by firm effects) were not significant in explaining auditors judgments.
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These results are important in that they illustrate the significance of the role that knowledge
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transfer plays in facilitating auditors exercise of appropriate professional skepticism in audit
engagement planning.
Moreover, this study also extends research on how knowledge transfer and experience
affect auditor performance in general as the model tested here is similar to that presented by
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Libby and Luft (1993). That model put forward that more experienced auditors were able to
perform better in certain tasks because of the knowledge that they had acquired through their
experience. While Libby and Lufts model looked at performance in general, the one presented
in this study specifically examines performance with respect to professional skepticism. In this
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study we test the notion that auditors can become more skeptical because of knowledge transfer
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from different sources like auditing standards and in-house training courses. The focus of this
study therefore, was to design and test a model for a task in which professional skepticism
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played an extensive role.
This study advances the literature by focusing on knowledge transfer between experts and
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novices in audit engagement and internal control system planning. Audit engagement and
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internal control systems planning is viewed as a necessary task to be performed by an IS design
that reduces errors as well as alerting auditors that more examination may be required before
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issuance of financial information. Therefore, we argue that knowledge transfer is a crucial

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component that concerns interpersonal (or intergroup or inter-organizational) transfer of

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information and know-how (Argote et al., 2000; Chang, Gong, & Peng, 2012) receptivity,
transparency, and coordination strategies (Cohen & Leventhal, 1990; Muthusamy & White,
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2005). The theory of knowledge management suggests that successful knowledge transfer relies
on the characteristics of not only the source of the knowledge, but also the recipient, for
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successful audit engagement and internal control systems planning (Argote et al. 2003).
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Results showed that an IS depicting knowledge transfer and expertise has a significant
positive influence on auditors decision-making in audit engagement system planning, and is
therefore an essential element of knowledge transfer during the decision making process.
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2. LITERATURE REVIEW
2.1 Knowledge management and transfer
Organizations have invested significant resources to understand and support what it
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means to be an agile organization. The agility of their businesses depends on their ability to best
leverage the knowledge resources of their organizations with an eye toward gaining competitive
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advantage (Sambamurthy & Subramani, 2005). Alavi and Tiwana (2002) describe knowledge
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management and knowledge management systems as necessities for organizational
effectiveness and competitiveness in the new millennium.
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In the last twenty years, two major streams of research have emerged in relation to how
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organizations become agile through learning. The first examines the actual processes that take
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place during organizational learning (Iyengar & Montealegre, 2015). In this approach, structured
frameworks are developed to explain the organizational learning process. The major
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shortcoming of this approach is that it does not provide good descriptions for measuring
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constructs and thus is not easily quantifiable (Robey, Boudreau, & Rose, 2000). This limits the
quantity of empirical studies and constrains comparison of results.

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The other approach is a knowledge-based view, which focuses on content theories

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(Pavlou, et al., 2005). Studies such as Vera, Crossan, and Apaydin (2011) concentrate on the
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outcomes of learning, which include knowledge transfer, knowledge sharing, and absorptive
capacity (Iyengar et al., 2015). Practitioners and researchers alike have focused on the most
efficient and effective methods to transfer knowledge throughout their organizations. Knowledge
transfer is viewed as an event through which an individual or organization learns from
informational sources (Argote, 1999). Improving knowledge transfer focuses on facilitating
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knowledge sharing among individuals, specifically from knowledgeable individuals to others.
According to Wei, Lin, Chin, An, & Weh (2015) knowledgeable individuals often can answer
questions, point to definitive sources or specialists, as well as perform needed functions requiring
special knowledge, skills, and experiences (p. 325). The knowledge-transfer framework
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provides a sound theoretical basis for describing how individuals adoption of new knowledge is
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influenced by refining and innovating of previous experiences and information sources.
Firms which focus on knowledge sharing behavior in the workplace foster a work
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environment that facilitates knowledge transfer within the organization (Bock, Zmud & Kim,
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2005). It is vital that organizations recognize and understand their knowledge sharing
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mechanisms as well as appropriate antecedents (Navimipore & Charbrand, 2016). Barriers to
knowledge sharing include insecurity in one's level of knowledge, the fear of losing a job, the
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perceived cost, unfamiliarity with the topic, individual attitude and perspective, and distrust
(Titi, 2013).
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Easterby-Smith, Lyles and Tsang (2008) considered the process of knowledge transfer at
different levels of analysis including that on the individual level. Liyanage, Elhag, Ballal, and Li
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(2009), extended this idea when they stated that knowledge transfer is the conveyance of
knowledge from one place, person or ownership to another. (p.122). Thus, organizational
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learning can be seen as depending on the interpersonal transfer of knowledge and in part on a
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persons ability to integrate their own experiences with the experience of others. (Moskaliuk,
Bokhorst, & Cress, 2016).
Knowledge transfer is aided by expertise, which has generally been defined in previous
research as number of years of experience or practice in a particular domain (Andersson, 2004;
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Bedard & Chi, 1993). To support this, Rodgers and Negash (2007) found that expertise affects
knowledge transfer in that knowledge transfer showed a higher retention rate in experts
compared to novices. In a study by Dogusoy-Taylan & Cagitay (2014) it was found that experts
and novices followed different patterns of concept map development processes. We thus
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propose in this study, that knowledge transfer from accounting standards is more effective in
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expert auditors compared to novice auditors, hence expert auditors will exhibit more professional
skepticism than novices in their audit judgments.
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Experts have advanced reasoning skills that differ from the way a novice may transfer
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knowledge from a source. Experts link concepts in meaningful ways and memories are
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categorized by whether they are concept-, context-, and content-addressable (Boland, Singh,
Salipante, Aram, Fay, & Kanawattanachai, 2001; Chi, Feltovich, & Glaser, 1981). They
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generally have very clear explanations as to why a solution is the correct one and use strategies
and methodologies to derive appropriate solutions. Experts also cluster knowledge structures to
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improve their decision making ability. Because experts can resolve inconsistencies, they are
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more adept at finding solutions (Dufresne, Leonard, & Gerace, 2014). This may be because, as
found by Brand-Gruwel, Wopereis, & Vermetten, (2005), experts spend more time defining the
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problem and use their prior knowledge and experience to regulate the entire decision making
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process.
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Bouwman, (1984) found that experts have complex sequencing patterns in the way they process
decision making information while Leonardi and Bailey (2008) found that an imbalance in
expertise led to problems in knowledge transfer. Dew, Read, Sarasvathy, and Wiltbank (2009)
also found that situational awareness, practice, and domain knowledge enable them to correctly
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identify the decision problem and adjust accordingly. These attributes produce the situational
knowledge experts need to analyze knowledge structures.
In the auditing context, Raborn (2007), found that forensic auditors develop knowledge
transfer skills in deductive reasoning. Deductive reasoning provides the tools needed to form
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inferences about the motives that people may have in problem-solving. The ability to form
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inferences is an important part of the decision making process in the initial knowledge transfer
phases. An expert must be able to develop an appropriate solution tableau based on the initial
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evidence and in situations where there is significant uncertainty, be able to deduce outcomes
based on imperfect information. Experts, through their background and experience, are much
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better equipped to connect the dots and to correctly assess the situation.
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The audit forecasting (planning) process resulting from knowledge transfer and
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utilization is an integral part of the standard operating procedures of audit firms. It is a task
typically performed by expert auditors and appears to be appropriate and offers opportunities to
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trace the knowledge transfer process employed. In line with this, our study investigates whether,
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when they are asked to decide on a proposed engagement budget, managers and partners
(experts) decisions are affected by knowledge transfer, their position with the firm, and type of
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firm.
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Before beginning the process of obtaining and planning audit engagements, auditors
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require a general understanding of the overall sequence of forecasting audit activities. This
general understanding is helpful for at least three reasons. First, audit activities depend on other
activities that are normally performed at an earlier time. Second, to improve the efficiency of the
audit, many activities should coincide with other activities. Third, individual activities are
generally easier to understand if they can be related to the overall audit process. Research
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suggests that this understanding of processes is likely to be more prevalent in experts. The first
step in an audit engagement is for an auditor to use his/her knowledge structures to understand
his/her clients operations (Rodgers & Housel, 2004). For example, what are the key financial
statement items? Which financial and nonfinancial statistics does the experts client routinely
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maintain? An expert auditor makes such inquiries before making preliminary assessments of
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risks associated with the engagement. The auditor then has to develop an audit plan where he
determines the amount of hours that would be sufficient to spend on the engagement. Auditors
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rely on the preliminary information that they have about a proposed engagement as well as their
existing knowledge structures to make this determination of the appropriate audit hours
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necessary to complete the engagement. In order to be effective in this task, auditors need to be
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appropriately skeptical in their evaluation of the available evidence.
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2.3 Professional Skepticism

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Professional skepticism, is traditionally defined, as an attitude that includes a
questioning mind and a critical assessment of audit evidence, and according to the Public
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Company Accounting Oversight Board (PCAOB) which oversees the audits of public
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companies, Professional skepticism is essential to the performance of effective audits
(PCAOB, 2012). Professional skepticism is one component of situational decision making and is
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often described in auditing literature as a continuum ranging from complete doubt to complete
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trust (Glover & Prawitt, 2014). If for instance, the auditor is not sufficiently skeptical, they may
assume that the risks associated with the engagement are low and therefore plan on, and allocate
an insufficient number of hours to the engagement or vice versa. Therefore, according to Glover
and Prawitt (2014) the behaviors and actions appropriate for professional skepticism must be
appropriate across a range of different views, applications, and opinions. The appropriate level
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of professional skepticism must fit each individual situation after appropriate analysis of the
auditing environment.
Most of the research on professional skepticism examines how skepticism influences
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audit judgments involving the actual performance of the audit for instance, evaluation of audit
evidence (Rodgers, Sderbom & Guiral, 2014). However, professional skepticism is also
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required in the planning of the audit, particularly in deciding on the appropriate audit hours to
allocate to an audit and its various components. One common measure for skepticism therefore
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in auditing literature is the auditors inclination to perform extensive testing and this can be
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indicated by hours budgeted for the audit tasks (Shaub & Lawrence, 1999; Hurtt et al., 2008).
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A considerable amount of auditing research is devoted to examining ways in which
professional skepticism can be improved. Notwithstanding, the PCAOB has in recent inspection
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reports still continued to express concern over auditors failing to carry out their work with
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sufficient professional skepticism (PCAOB, 2012). In a PCAOB practice alert, appropriate
assignment of personnel to engagement teams is identified as a key factor in promoting

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professional skepticism (PCAOB, 2012). The practice alert suggests that knowledge and
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expertise will enhance professional skepticism and this is consistent with extant research
(Glover, Jiambalvo, & Kennedy, 2000; Hammersly, 2006). The main purpose of this study
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therefore is to examine the role that knowledge transfer plays in auditors skepticism and
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consequently, overall auditor effectiveness in the context of engagement planning.
While some studies have looked at individual determinants of skepticism, several studies
(see Nelson 2009 for a review) have attempted to model skepticism, taking into account the
various determinants. Nelson (2009) in particular proposes a model of professional skepticism in
which knowledge and expertise play an important role. This study proposes a similar model in
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which knowledge transfer and expertise are the major component, the others being position in
firm and firm type. The study proceeds to experimentally test each component and then also test
the overall validity of the model.
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3. HYPOTHESIS DEVELOPMENT
3.1. Effect of knowledge transfer and expertise on judgment
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The knowledge transfer from auditing material (e.g., training courses, auditing standards,
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etc.) to auditors may influence the importance of professional skepticism (Baum, McEvily, &
Rowley, 2012). Further, the overlap in knowledge and expertise should make it simpler for
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auditors to operationalize professional skepticism (Tortoriello et al., 2012). For example, Bedard
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and Chi (1993) posit that experts know more about their domain and appear to have more meta-
knowledge than novices. Neves and Anderson (1981) argued that one effect of experience is that
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simple domain facts are proceduralized into specific rules for using them, and that rules for
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controlling reasoning are composed and generalized. They referred to this effect as knowledge
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compilation. In other research (Boritz, Gaber, & Lemon, 1987; Ellis, Reus, Lamont & Ranft,
2011), experience effects were used as a surrogate for expert knowledge. For example, the
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hierarchical structure of certified public accounting (CPA) firms reflects the importance of this
variable. Also, the charge-out rates used by professional accounting firms are based upon
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expertise equated with years of experience.

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Research has shown that when comparing knowledge transfer mechanisms, experts are
superior to novices in the areas of recall, categorization, and chunking (Rodgers, 1999; Lehmann
& Norman, 2006). Experts produce better abstract representation of information (e.g., by
concepts or a deep structure) (Hinds, Patterson & Pfeffer, 2001; Dufresne et al., 2014), and a
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more cohesive representation of information (e.g., randomly sorts ordered script activities faster)
(Pryor & Merluzzi, 1985; Lesgold, Rubinson, Feltovitch, Glaser & Wang, 1988). They also show
better clusters (meaningful groupings) of presented information (Halpern & Bower, 1982), as
well as greater inferential capability (Ceci & Liker, 1986; Graeff, 1997). When auditors make
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audit planning judgments involving the amount of audit time to allocate to an engagement, they
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are using a large amount of imprecise information. They have to synthesize, process and interpret
the information and make their judgment ensuring that they take into consideration all the
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important points. It would appear that such a task would require auditors to rely on their
knowledge transfer of existing structures of auditing processes. The differences in information
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processing and judgment between experts and novice detailed here would lead us to the first
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hypotheses:
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Hypothesis 1 a. The judgments and decision choices of experts will be less varied than
those of novices indicating a higher level of professional skepticism.
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Hypothesis 1 b. The judgments of experts will be more accurate than those of novices
indicating a higher level of professional skepticism.
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3.2. Effect of knowledge transfer and expertise on employment position

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Auditing standards and materials are incorporated in auditors knowledge structures and
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can be viewed as professional network cohesion (Reagans & McEvily, 2003). The source can be
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viewed as education, professional training, and auditing experience. We emphasize the
importance of network cohesion since prior research has established the importance of network
relationships in facilitating knowledge transfer (Szulanski, 1996; Uzzi, 1996). Such a
transformation is an essential part of the knowledge transfer and acquisition process (Rodgers &
Negash, 2007).
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Auditors knowledge generally consists of general domain, subspecialty, and world
knowledge (Bonner and Lewis 1990). General domain knowledge is acquired by decision
makers through instruction and experience in an IS domain. Subspecialty knowledge is acquired
through formal instruction and experience, and is specific to decision makers in that subspecialty
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area (Danos, Eichenseher, & Holt, 1989). World knowledge is accumulated through individual
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life experiences and instruction, and, it is unlikely that all decision makers at a given experience
level will possess it equally. While world knowledge might not significantly differ across
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experience levels, general domain and subspecialty knowledge, which are key components of
auditing tasks are likely to be possessed by experts but tenuous in novices.
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Our model assumes that auditors who are experienced and have acquired subspecialty
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knowledge are those who are likely to have achieved higher positions in the accounting firms
(managers and partners), while those who are novices occupy the lower positions in the firms.
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Assuming that the more subspecialty knowledge possessed, the higher the position held, it is
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likely that there will be a significant difference in this kind of knowledge between managers and
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partners. Since subspecialty knowledge is a key component of an auditing task, it can be posited
that different levels of this type of knowledge would also result in different judgments.
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Conversely, general domain and world knowledge, which are likely to be possessed by novices,
are not as important in auditing judgment tasks therefore differing levels of this type of
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knowledge would not be expected to necessarily yield different judgments. Also, because this
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type of knowledge is not necessarily relevant to auditing, it is unlikely to influence the position
that they hold in the firm. This leads to the second hypothesis:
Hypothesis 2. Expert (novice) auditors knowledge transfer will (will not) significantly
affect their employment position and judgment.
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3.3. Knowledge transfer effect of position on judgment
Recall that in the case of auditing expertise, the assumption is that the more knowledge
auditors have, the more likely it is that they hold a higher position, and also being better at
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knowledge transfer due to experience will mean that they make different (better) decisions than
someone with less knowledge. For example, managers may be influenced to include built-in
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slack time as part of an audit budget. On the other hand, partners desire more efficiencies in an
audit budget and may want to reduce the total hours by carrying out less detailed tests. Novices
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however, only have general domain and world knowledge which is not so relevant to auditing
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tasks, therefore it will affect neither their position nor their judgment. Assuming that H2 holds, it
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can therefore be expected that the position that an expert holds would significantly influence
judgment while the position held by a novice would not.

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Hypothesis 3. Expert auditors (novice) employment position with the firm will (will
not) significantly affect their judgment.
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3.4. The knowledge transfer effect of judgment on decision

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The view of knowledge transfer in this section is that learning involves acquisition and
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exploitation of new knowledge by decision makers and organizations (Cohen & Levinthal,
1990). For instance, where auditors make an initial judgment about audit hours, it is merely an
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estimation of what they think would be adequate given some facts about the proposed audit. In
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the case that they obtain additional information that is relevant and helpful to their decision, they
may be compelled to modify this initial judgment by incorporating the new information. This is
usually the case because auditors first estimate the hours for the engagement (judgment) and then
after final consultation with partners (or higher level managers), a final decision choice is made
regarding the hours for the engagement. The decision choice can be influenced by consultation
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with the firms management and/or competitive bidding from other firms. Because of this, it is
important to examine the relationship between the auditors initial judgment and the final
decision that is ultimately made regarding audit hours.
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In transferring knowledge, professionals rely more on deep features such as auditing
standards or procedures, and novices rely more on surface features or common factors (Chi et
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al., 1981; Wu & Lin, 2006). Nonetheless, any new information being considered is match-
processed with expert auditors/novices existing models such that the resulting judgment is still
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based on the initial judgment. Thus we can expect that all auditors will match-process any new
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information they obtain from final consultations against their original estimates of audit hours
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resulting in final decisions being related to original judgments, leading to the fourth hypothesis:
Hypothesis 4. For both expert auditors and novices, judgments will significantly affect
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decision choice.
3.5. Embedded Knowledge Transfer in Firm Effects

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A potential knowledge recipient is more likely to effectively procure knowledge from a

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source when the source and recipient overlap in what they know (Tortoriello et al., 2012).
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Further, knowledge transfer may be more successful since the source (auditing firm) and the
recipient (partner or manager) overlap in terms of ideas, methods, and procedures (Cohen &
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Levinthal, 1990). As a result, the auditing firm and partners/managers are more likely to be
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acclimated to communicating with their respective associates via knowledge transfer. For
example, previous research has shown that knowledge transfer as depicted by firm effects, has a
significant impact on auditors judgments (Francis, Maydew, & Sparks, 1999; Geiger & Rama,
2006). Large firms particularly wish to promote an image of product homogeneity therefore they
emphasize consistency of audit approach. This can be achieved through extensive adoption of
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checklists, structured working papers, decision aids and staff training programs. This consistency
of audit approach usually means that auditors from one firm will tend to do things differently
from another firm, and the differences in firm audit approach may then result in significant
differences in audit judgment. In the context of engagement planning, it may then be expected
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that auditors professional skepticism may be influenced by the training received from, and firm
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policies employed in different firms. This leads to the final hypothesis:
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Hypothesis 5. Professional skepticism in terms of firm effects will significantly affect
partners/managers judgments.
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4.0 Modeling Knowledge Transfer and Professional Skepticism
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This study presents expert knowledge as a latent concept measured by both training (e.g.,
years of experience) and ability (e.g., years the CPA certificate held) indicators. A crucial feature
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involving the use of information is whether the information fits into a causal link that eventually
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affects decision choice (Tversky & Kahneman, 1974). Rodgers (1991b) advocated that this
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approach permits a detailed, substantive tracking of the decision-making process under
investigation which may lead to improved artificial intelligence techniques and expert systems.
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Einhorn and Hogarth (1981) emphasized that predictions and actions, as well as outcomes should
be represented as a causal process model. Thus, the hypotheses predicted above were used to
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build a model of professional skepticism. Before the discussion of the proposed model structure,
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a summary of the variables used in this model is in order.
We posit that expertise and knowledge transfer will have a significant effect on judgment,
that is, a knowledge base acquired in a formal learning environment should affect auditors
judgment. Next, auditors positions (ranks) within the firm are considered as a significant factor
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influencing knowledge transfer and utilization, and revisions of tentative strategies (i.e.,
professional skepticism judgments). While this is not a variable necessarily examined in previous
models such as those presented by Nelson (2009) and Libby and Luft (1993), in this study it is
considered to have a significant influence on auditors judgment, and to also mediate the
PT
relationship between knowledge transfer and auditors judgments.
RI
The judgment variable represents an auditors search for, or design of possible solutions,
and the decision choice represents his/her selection of an action. Judgment thus mirrors skeptical
SC
judgment and decision choice mirrors skeptical action in the model presented by Nelson (2009).
U
Finally, firm effects are included in this model, because previous research points to the
AN
significance of these variables.
Causal analysis is influenced immensely by two versions of the representative heuristic

M
model (Nisbett & Ross, 1980; Rodgers, 1991a; Rodgers, 1991b). First is the mandate that
features of any causal factor resemble the characteristics of the effect to be explained. This study
D
shows that an auditors position in a firm is affected by his/her expert knowledge of budgetary
TE
requirements before making decisions concerning accepting an engagement with a minimum
amount of total hours.

EP
Second is the requirement that a cause resemble a causal factor in a theory which
C
explains the effects in question. For example, auditors are assumed to make inferences on the
AC
basis of their knowledge of auditing procedures and to store these as abstract concepts and rules
for decision making (Bedard & Chi, 1993; Rodgers & Housel, 2004). This study suggests that
auditors consider their expert knowledge important and relevant in evaluating proposed audit
engagement budgets and may clarify how auditors select the total hours for engagement budgets,
as mediated by their position in the firm and by a more in-depth analysis they perform in the
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judgment stage. Therefore, this study proposes a four-stage model for decision making that
supports IS design (Figure 1).
PT
RI
SC
Expert
Knowledge
U
AN
Position
Judgment
M
Decision
D
Choice
TE
Firm
C EP
AC
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Figure 1 - Auditors Knowledge Transfer Causal Processes
During the first stage, auditors expert knowledge has a direct effect on position as well
as on judgment. Position has a direct effect on judgment in the second stage. The third stage of
PT
processing involves the effects of auditors judgments on their decision choices. This stage
RI
depicts the auditor with access to organized memories, derived from prior preferences and firm
effects, which allow the auditor to compare current budgetary engagements with expectations
SC
distilled from the use of expert knowledge. Auditors fourth stage represents their selection of a
minimum total of budgetary hours for an engagement. These minimum hours represent auditors
U
final decision after a negotiation process has taken place. These types of decisions are referred to
AN
as constructions, in which an individual tries to assemble the most satisfactory alternative
possible (Yates, 1990).

M
5. METHODOLOGY
D
5.1 Participants
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Data for this study was obtained by conducting an experiment with 64 practicing auditors
EP
from the Big 4 CPA firms as well as 33 Summer school business students. Of the 64 auditors
who represented the experts, 26 were managers and 38 were partners. The business students
C
who were enrolled in a graduate credit analysis course at the University of California (who
AC
participated in this study for extra credit), represented novices as they reported having no
previous supervisory audit experience.
5.2 Experimental Task
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The experimental task involved time budget preparation for an audit engagement and was
developed from an actual audit engagement completed by one of the "Big 4 CPA firms. This
engagement had been obtained in a competitive bidding and had resulted in the CPA firm billing
the client for a total of 462 hours for the audit.
PT
The audit planning task was deemed appropriate because it can be viewed as a decision-making
RI
variable that captures knowledge transfer. This is because it involves deciding, based on
knowledge acquired from sources like auditing standards, education and training, on factors such
SC
as the appropriate number of audit hours to allocate to audit tasks. The task is also considered
U
appropriate to test knowledge transfer effects because it is one that requires more skill and
AN
knowledge, and is not likely to be made the sole responsibility of inexperienced audit staff,
which is an essential factor in enhancing the validity of test results (Libby & Luft, 1993).
M
Auditors make initial judgments about the risk of material misstatement of an assertion and use
those judgments to decide on the areas where they will focus their audit efforts and how to
D
judiciously allocate the time and other resources they have available to that audit engagement.
TE
As with any other audit judgment, auditors are expected to exercise professional skepticism in
this task, therefore it is appropriate that professional skepticism be evaluated within this context
EP
of engagement planning (PCAOB, 2007, 2008). When auditors exercise professional skepticism,
C
it is expected that this professional skepticism is reflected in planned audit hours for their audit
AC
engagements.
5.3 Procedure
Case materials were delivered to the practicing auditors at their offices while the students
received the case material during class and were told to treat the case as an in class assignment.
The participants were told that their responses would be held in the strictest confidence and were
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instructed to work independently and not discuss the study with others. Further, they were
instructed that they did not have unlimited time for the audit.
Participants were told that they had been assigned as a partner/manager in charge of a new client
PT
that had never been previously audited, and they were provided with information on the client
relating to general history, credit arrangements, accounting policies and procedures, and
RI
employment policies and compensation. They were instructed to estimate the total hours needed
to complete the audit without the knowledge of the actual total hours spent on the audit
SC
engagement (this represented their judgments). Estimation of hours needed was to be done by
U
assigning (budgeting) time (in man hours) to each of 24 audit areas, based on the information
AN
provided in the case. Then all the participants were given the actual total hours spent on the
audit. Finally, they were asked to estimate the minimum number of hours that they would need to
M
perform the audit engagement (decision choice).

D
In addition to estimated hours needed to complete the engagement, demographic information on
the participants was also collected..

TE
5.4 Variables
EP
All five constructs in this model were captured on a questionnaire that was completed by
each participant. Each of the five constructs was measured, or indicated, by questionnaire items.
C
Questions were chosen to have a specified degree of variability in content so that the latent
AC
variable that unified each set of questions would have a reasonable degree of meaningful
generality.
Expert knowledge was assessed by auditors experience (how many years of auditing
experience they had) and the year the CPA certificate was obtained (number of years the CPA
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certificated has been held). Novices expert knowledge was assessed by number of accounting
courses taken and type of education (bachelor=1; bachelor and above=2). Position for experts
was indicated by whether they were managers (coded 1) or partners (coded 2). For novices,
position was indicated by whether they had a supervisory experience (coded 1) for supervisory
PT
experience and 2 for non-supervisory experience. Firm effects were indicated by which of the
RI
Big Four CPA firms the participants belonged and these were coded 1 through 4 with each
number representing a Big 4 CPA firm.
SC
Expert auditors and novices judgments were measured by the total hours they indicated
U
were needed to complete the engagement (without participants knowledge of actual bid hours
AN
for the engagement). Their decision choices were measured by the minimum hours they
indicated that they would accept the auditing engagement for (after their knowledge of actual bid
M
hours).
D
5.5 Development of an Expert Model
The methodology used to analyze the theoretical model consists of an application of

TE
developed procedures of causal modeling (Foss & Rodgers, 2011; Bentler, 1983; Guiral, et al.,
EP
2015; Rodgers & Housel, 1987; Rodgers & Housel, 2004; Rodgers & Johnson, 1988) to
correlational data obtained from a sample of auditors. Multivariate analysis with latent variables
C
is employed to estimate simultaneously the parameters of a causal model and a measurement

AC
model. The causal model specifies linear influences hypothesized to be present in a group of
latent variables. These latent variables are not measured directly; rather, they are inferred from
the measured variables.
The measurement model denotes the linear relations of these latent variables to the
observed variables. For example, in Fig. 1 the causal parameters (regression weights) are
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depicted by unidirectional arrows between the latent variable indicated in a circle and measured
variables indicated in boxes. The measurement parameters are not indicated. The smaller, single-
ended arrows illustrate residuals or unexplained variances.
PT
Figure 3 shows a possible measurement structure for the only latent expert knowledge
construct. The xs are observed variables; the arrows between the xs and the latent variable
RI
indicate factor loadings, whereas the other arrows designate error variances. The auditors expert
knowledge is not observed, but its effects are expressed in the observed variables. This approach
SC
to expert knowledge as a latent variable is consistent with the idea of decision makers processes
U
as a hypothetical variable (Rodgers & Housel, 1987; Rodgers & Housel, 2004).
AN
M
D
X1
TE
Expert
Knowledge
EP
X2
C
Figure 2 Measurement Model for Knowledge Transfer Influencing Skepticism in Engagement

Planning
AC
Since all of the variables to be analyzed are ordinal as well as interval, a moment matrix of
polyserial correlations was performed before testing the causal model (Olsson, 1979). This was
done because when some of the variables are ordinal, the only correlation matrices which are
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meaningful are moment matrices, since ordinal variables do not have an origin or a unit of
measurement (Muthen, 1984). The assumption of normality was derived by testing each pairing
of variables which previously met the test of significant correlation.
PT
5.6 Analysis
Maximum likelihood was used to estimate our model by the computer program LISREL
RI
(Joreskog & Sorbom, 1988). A goodness-of-fit index and a root mean square residual were used
SC
to evaluate the efficacy of the model. When close to 1.00, the goodness-of-fit index indicates
that the model has captured most of the information about relationships between the observed
U
variables as given in the sample variance/covariance matrix (Bentler, 1983). The root mean
AN
square residual measures the average of the residual variances and covariances. Values less than
2.00 indicate a good fit of the model.

M
6. RESULTS
D
TE
Table 2 reports the mean and standard deviations for the expert auditors and novices.
The measurement model parameters of Tables 2 and 3 represent factor loadings. The factor
EP
loadings are the standardized regression weights for predicting observed variables from latent
constructs. The factor loadings are high and consistent for each of the latent variables under
C
investigation. Consequently, it can be concluded that the model assesses the theoretical
AC
constructs hypothesized to exist at the level of latent factors with a reasonable degree of
precision, and that the observed variables are adequate indicators of these factors.
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Table 2
Expert Auditors and Novices Data
EXPERT AUDITORS DATA
PT
CPA
Certificate Decision
RI
Experience Obtained Position Firm Judgment Choice
SC
Mean 11 76 1.59 3.53 451 389
Std. Dev. 4 4.75 0.50 1.63 162 81
U
AN
NOVICES DATA
M
Number of Supervis.
accounting Type of vs. Decision

D
courses Education Nonsuper. Firm Judgment Choice

TE
Mean 2.76 1.85 1.64 -- 394 390

EP
Std. Dev. 2.94 0.44 0.49 -- 441 158

C
AC
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Table 3
Expert Auditors Standardize Parameter Estimates
Measurement Model Parameters
Factor and Variables Factor Loading Error Variance
PT
Expert Knowledge
Experience -1.047 0.033
Year CPA obtained 0.907 0.038
RI
Causal Model Parameters
Standard Weight Critical Ratio
SC
Regression Weights
EP 0.786 9.132*
EJ
U 0.436 2.666*
AN
PJ -0.534 -3.030*
JD 0.715 8.116*
M
FJ -0.099 -0.817
Where, E=Expert Knowledge, P=Position, J=Judgment, D=Decision Choice, and F=Firms

D
Residual variances
TE
Position 0.382
Judgment 0.882
Decision choice 0.489

EP
2
Coefficient of determination (R ) = 0.646
Chi-square with 7 df=13.03

C
Goodness of fit index = 0.852

AC
Root mean square residual = .120
*p < .05
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Table 4
Novices Standardize Parameter Estimates
Measurement Model Parameters
Factor and Variables Factor Loading Error Variance
PT
Expert Knowledge
Experience 0.660 0.226
Year CPA obtained 0.813 0.281
RI
Causal Model Parameters
SC
Standard Weight Critical Ratio
Regression Weights
U
EP
AN -0.411 -1.880
EJ 0.392 1.654
PJ -0.083 -0.431
JD 0.411 2.554*
M
Where, E=Expert Knowledge, P=Position, J=Judgment, and D=Decision Choice
Residual variances
D
Position 0.831
TE
Judgment 0.813
Decision choice 0.831
Coefficient of determination (R2) = 0.282

EP
Chi-square with 4 df=6.40
Goodness of fit index = 0.923

C
Root mean square residual = .096

AC
*p < .05
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The details associated with the causal model parameters of Tables 2 and 3 can be
understood in the context of the following notation. Each causal parameter estimate contains a
subscript consisting of two letters. These designations are derived from the first letters of the
PT
respective factor names communicated by the parameters (E= expert knowledge, P= position, F=
firm, J= judgment, and D= decision choice). The subscripts associated with regression weights
RI
(directional arrows in the figs.) are ordered so that the first subscript signifies the antecedent
SC
variable (or cause), while the second refers to the dependent (endogenous) variable.
Overall, it can be seen in Tables 2 and 3 that the causal models R2 is moderately high
U
(0.646) for the expert auditors model and moderate for the novices model (0.282), respectively.
AN
Also, the goodness-of-fit index and the root mean square residual (see Tables 2 and 3) results
indicated a good fit for both models (see Rodgers and Johnson 1988, for a detail description on
M
model fit).
D
Hypothesis 1
TE
Recall that H1a predicted that the judgments and decisions of partners/managers would
be less varied than those of novices, thereby indicating enhanced professional skepticism. A
EP
multi-sample analysis (Joreskog & Sorbom, 1988) was used to test this hypothesis. This test
C
determined whether there was any significant difference between the expert auditors and the
AC
novices model for the decision choice variable. This analysis is similar to MANOVA (see Bray
& Maxwell, 1985). In the multi-sample analysis tested in this study, the differences in the expert
auditors model compared to the novices model was equivalent to a test of whether the error
variance of decision choice was equal across both groups. In other words, the error variance is
constrained to be equal across the two groups, to show, based on chi-square differences, that they
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are unequal. Based on these results, the two groups were significantly different on judgment and
2
decision choice ( =20, df=1) at the p < 0.05 level. Also, the expert auditors group arrived at
less varied predictions for required audit hours, that is, the dispersion of predictions by expert
auditors group was statistically lower (see Table 1), hence HIa was supported.
PT
H1b, which predicted that the judgments of expert auditors would be more accurate than
RI
those of novices, was also supported (thereby enhancing professional skepticism). Results show
SC
that expert auditors means for judgment (451) are significantly closer to the winning bid of
462 hours than the novices mean (394) at the p < 0.05.
U
Hypothesis 2
AN
The second hypothesis was supported in that expert auditors knowledge transfer
significantly affected their position (EP= 0.786) and judgment (EJ= 0.436) at the p < 0.05 level.
M
Results show that partners generally possessed more knowledge and expertise as measured by
D
the length of time they had held the CPA certificate, and their years of experience in auditing
TE
compared to managers. Also the knowledge transfer influencing the judgments of managers was
significantly different from that of partners. Novices knowledge transfer did not affect their
EP
position (EP= -0.411) and judgment (EJ= 0.392) at the p < 0.05 level. This outcome can be
explained by noting that novices did not have any knowledge transfer of prior experiences to
C
reinforce known auditing rules or previous hypotheses.

AC
Hypothesis 3
The third hypothesis was supported: Knowledge transfer of expert auditors position with
the firm significantly affected judgment (PJ= -0.534) at p < 0.05, and novices position with the
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firm did not significantly affect judgment (PJ= -0.083) at p < 0.05. The negative sign may be an
indication that managers, since they are closer to administering an audit engagement, have more
expertise in audit planning.
PT
Hypothesis 4
There was evidence supporting the fourth hypothesis that both expert auditors and
RI
novices judgments significantly affected decision choice (JD= 0.715 and 0.411, respectively) at
SC
the p < .0.05 level.
Hypothesis 5
U
AN
Finally, the fifth hypothesis was rejected since the professional skepticism in terms of
firm effects pathway (FJ= 0.031) did not have a significant effect between partners and
M
managers judgments.
D
7. DISCUSSION
Support for hypothesis 1 suggests that expert auditors appear to be better than novices at
TE
knowledge transfer and utilization, information search, and comprehension. Apparently, they are
EP
better able than novices in searching through less information and making general interpretations
of the data, and building representations of situations from an IS perspective. The initial
C
judgments of expert auditors were significantly closer to the actual hours compared to those of
AC
novices. These initial judgments were also significantly higher than those of novices, thereby
reflecting higher levels of professional skepticism. Both judgments and decisions of experts were
less varied than those of novices, providing evidence that experts generate more cohesive
representations of information and are also more consistent in their evaluation of information
that resulted in a superior IS design platform. This indicates that experts are more equipped to
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sort through the information given, and decide what is important and what is not important to the
task at hand. Their ability to weigh and prioritize the available data results in a more accurate
assessment of the task. In particular, expert auditors representations seem to be larger, taking
into account more of the available information. The novices, on the other hand, tend not to probe
PT
deeply, and not to look at the long-term implications of the audit planning.
RI
Results of hypotheses 2 and 3 provide evidence for the idea that knowledge transfer and
experience, which are reflected in firm position, will generally improve judgment and skepticism
SC
(the differences between novices and experts). However, results within the expert group provide
U
further evidence for the notion that sometimes more experienced auditors (partners) may exhibit
AN
less skepticism than managers (Shaub & Lawrence, 1999).
The results from hypothesis 4 simply show that auditors, regardless of their knowledge
M
transfer and experience, will incorporate new information into their initial judgments in a
D
reasonably consistent manner. Auditors final decision choices for audit hours were influenced
by initial estimates, suggesting that auditors skepticism reflected in the initial judgments is
TE
carried through to the final decision, and not overly influenced by new information from partner
EP
consultations. This reinforces the idea that experts are able to weigh the importance of
information and to make judgments as to the impact of information on final outcomes. On the
C
other hand, novices, even when faced with new (arguably better) information, were apparently
AC
unwilling to significantly modify their initial positions, showing an inferior ability to weigh the
importance of information, and appropriately incorporate it in their decision-making.
Another important finding in this study is that firm effects were not significant in
explaining auditors judgments. Also note the regression weight of 0.031 for FJ in Table 2. This
means that style or varied training from different accounting firms does not influence the
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expertise of auditors (or skepticism). Undoubtedly, expert auditors professional skepticism
depicted in their judgments is quite similar across firms. For future IS design, this finding
supports the notion that differences in audit style are not necessarily reflected in audit
judgments regarding internal control systems.
PT
The model differences between the expert auditors and the novices strengthened support
RI
for the role of knowledge and expertise in improving skepticism in engagement planning. For the
expert auditors model, it is apparent that expert knowledge, or some unidentified antecedents,
SC
are contributing significantly to the occurrences of position type and judgment without the
U
regulation of firm effects. AN
In the third stage of the expert auditors model, position has a significant effect on
judgment and a significant indirect effect on decision choice of -0.386 (p < 0.05), that is, the role
M
of position type in inducing future behavior is, for the most part, mediated by judgments. These
D
findings in general, appear to point to the importance of factors besides judgments for the
prediction of behavior in an engagement planning setting. Position type and judgment contribute
TE
significantly to the ability of expert auditors to assess the initial information and to make
EP
accurate assessments based on their experience and knowledge. Their level of professional
skepticism contributes to their ability to make judgments about the value of data and its
C
relevance to the audit planning phase.

AC
The arrows in a diagrammatic representation of the causal model (Figure 1) imply
theoretical causal influences. The empirical parameter estimates must be carefully compared to
theoretical expectations. That is, neither the causal regressions of expert knowledge and position
on judgments nor the expert knowledge effect on position is positive. Consequently, one may
conclude both that judgments may be altered by factors other than expert knowledge and
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ACCEPTED MANUSCRIPT
position, and that changes in auditors decision-making processes underlying an engagement
planning setting process may be affected by their use of heuristic and cognitive simplification
strategies (Joyce & Biddle, 1981; Tversky & Kahneman, 1974). It is hypothesized that such
negative effects might be expected in those situations where auditors strategies serve them well,
PT
even though undesired systematic biases may occur in some tasks. For example, a conclusion
RI
reached in a major review of the judgment literature in psychology (Slovic & Lichtenstein, 1971)
is applicable in the context of budget setting: Judges have a very difficult time weighing and
SC
combining information, be it probabilistic or deterministic. To reduce cognitive strain, they
resort to simplified strategies, many of which lead them to ignore or misuse relevant
U
information (p. 735). Therefore, the exact extent to which auditors expert knowledge and
AN
position relate to other types of auditing tasks remains an empirical question that requires further
research.
M
D
8. CONCLUSIONS
TE
The aim of this study was to examine knowledge transfer in expert and novice auditors to
EP
determine how and why their decisions differed in the task of allocating audit hours to an audit
engagement. The study involved auditors making an initial judgment of hours required to
C
complete an actual audit engagement and then later making a final decision of how many hours
AC
to budget after obtaining information about the actual hours charged.
Overall, this study concluded that the transfer of information or know-how may affect audit
decisions. Thus, the study takes the IS literature one step further by positing the predictability of
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audit decisions on the basis of knowledge transfer components as depicted by the model in
Figure 1.
More specifically, the study finds the judgments of expert auditors are more accurate and exhibit
PT
higher levels of professional skepticism, thus expert auditors appear to be better than novices at
knowledge transfer and utilization, information search, and comprehension. These findings add
RI
to the understanding of the role of expertise in audit judgments, as existing research has not
examined audit judgments in the context of knowledge transfer. Similarly, this extends our
SC
understanding of the applicability of knowledge transfer concepts in the area of audit planning.
U
The finding that superior knowledge transfer in expert auditors led to more skeptical audit
AN
judgments adds to the research on professional skepticism. This is important as trending research
focuses on how auditors can exhibit higher levels of professional skepticism, and these findings
M
suggest strong associations between skepticism and knowledge transfer. Thus, examining ways
D
to improve knowledge transfer in auditors may improve professional skepticism, making this a
fertile area for future research.

TE
Considering that much of the knowledge that auditors acquire is from training courses, auditing
EP
standards and auditing manuals, findings from this study highlight the limited value of exposure
to those sources of knowledge, helping to better calibrate the expectations from novice auditors.
C
This study suggests that the transfer of knowledge from different sources is best accomplished in
AC
experts, so training alone cannot substitute for actual expertise, thus certain higher level tasks
still need to be allocated to experts, regardless of exposure to knowledge sources.
Another important finding of this study was that auditor judgments were consistent across
different audit firms. This suggests that the model used can serve as a starting point for
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describing and understanding that different audit practices do not necessarily lead to different
audit judgments for internal control systems. In other words there may be many ways to a mean.
As with programming languages, programs can be written a thousand different ways and still
accomplish the same task. Also, the model may be useful for investigators in the determination
PT
of how IS may effectively use knowledge transfer in order to weight and combine information to
RI
make evaluations, predictions and choices of audit engagement and internal control system
budgets. In big data analysis, the use of artificial intelligence based algorithms could provide
SC
much more efficient and effective models in the future.
U
This study used multivariate analysis with the latent variable of expert knowledge, the
AN
benefits being, (1) the results are freed from the arbitrary levels of reliability or error variance in
the variables, (i.e., estimates of effects are not biased as they are in path analysis with observed
M
but unreliable variables); and (2) greater generalizability is obtained in that the latent constructs
are more general than any particular measured variable (see Bentler, 1983). Thus, this study has
D
proposed an IS model that may be more reflective of decision makers processes underlying
TE
engagement and internal control system planning behavior.

EP
While the results reflected in this study may not necessarily amount to verified theory,
they do suggest a potential direction, which may provide fertile areas for future IS theory
C
development and research, especially in the areas of professional skepticism, knowledge transfer
AC
and utilization.
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Highlights
Title: Knowledge Management: The Effect of Knowledge Transfer on

Professional Skepticism in Audit Engagement Planning
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Explores how auditors interact with the knowledge transfer process.
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Illustrates how knowledge transfer improves the accuracy of auditor judgments.
Highlights the significance of knowledge transfer in audit engagement planning.
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Uses an empirical model to test how skepticism is utilized in experts vs novices.
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The Effect of Knowledge Transfer On Professional Skepticism in Audit Engangement Planning

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Knowledge management: The effect of knowledge transfer on professional skepticism

Grace Mubako, Waymond Rodgers, Laura Hall

To appear in: Computers in Human Behavior

Received Date: 2 September 2016

Knowledge Management: The Effect of Knowledge Transfer on Professional

Department of Accounting and Information Systems

El Paso, TX. 79968

El Paso, TX. 79968

Knowledge Management: The Effect of Knowledge Transfer on Professional

Skepticism in Audit Engagement Planning

professional skepticism in audit engagement planning.

Keywords: Knowledge management, organizational learning, knowledge transfer, decision

making, expertise, audit planning

Knowledge Management: The Effect of Knowledge Transfer on Professional

Skepticism in Audit Engagement Planning

success of organizations that expect to survive and grow.

decision-making during audit engagement planning (Hurtt, Brown-Liburd, Earley, &

Krishnamoorthy, 2013). An important factor in auditor decision-making is professional

skepticism and this study identifies professional skepticism as an important component of

knowledge transfer. Simply defined, professional skepticism is an attitude that includes a

influencing professional skepticism in the planning of an engagement (Nelson, 2009) by actually

testing a variant of proposed skepticism models.

to an audit engagement based on their level of professional skepticism. We use a Throughput

actual hours charged.

transfer plays in facilitating auditors exercise of appropriate professional skepticism in audit

issuance of financial information. Therefore, we argue that knowledge transfer is a crucial

component that concerns interpersonal (or intergroup or inter-organizational) transfer of

positive influence on auditors decision-making in audit engagement system planning, and is

2.1 Knowledge management and transfer

Organizations have invested significant resources to understand and support what it

effectiveness and competitiveness in the new millennium.

quantity of empirical studies and constrains comparison of results.

The other approach is a knowledge-based view, which focuses on content theories

transfer is viewed as an event through which an individual or organization learns from

informational sources (Argote, 1999). Improving knowledge transfer focuses on facilitating

knowledge sharing among individuals, specifically from knowledgeable individuals to others.

Bokhorst, & Cress, 2016).

research as number of years of experience or practice in a particular domain (Andersson, 2004;

skepticism than novices in their audit judgments.

knowledge experts need to analyze knowledge structures.

2.3 Professional Skepticism

Professional skepticism, is traditionally defined, as an attitude that includes a

companies, Professional skepticism is essential to the performance of effective audits

Most of the research on professional skepticism examines how skepticism influences

sufficient professional skepticism (PCAOB, 2012). In a PCAOB practice alert, appropriate

assignment of personnel to engagement teams is identified as a key factor in promoting

consequently, overall auditor effectiveness in the context of engagement planning.

various determinants. Nelson (2009) in particular proposes a model of professional skepticism in

the overall validity of the model.

3.1. Effect of knowledge transfer and expertise on judgment

expertise equated with years of experience.

knowledge transfer of existing structures of auditing processes. The differences in information

3.2. Effect of knowledge transfer and expertise on employment position

viewed as education, professional training, and auditing experience. We emphasize the

relationships in facilitating knowledge transfer (Szulanski, 1996; Uzzi, 1996). Such a

Auditors knowledge generally consists of general domain, subspecialty, and world

makers through instruction and experience in an IS domain. Subspecialty knowledge is acquired

auditing tasks are likely to be possessed by experts but tenuous in novices.

affect their employment position and judgment.

3.3. Knowledge transfer effect of position on judgment

judgment while the position held by a novice would not.

3.4. The knowledge transfer effect of judgment on decision