Information Sharing during Auditors Fraud Brainstorming: Effects of Psychological Safety and Auditor Knowledge

Conducting a fraud brainstorming session during planning assists with risk-based tailoring of the audit. An effective session should include a team environment in which all members are willing to share information to appropriately calibrate the collective assessment of fraud risk. We report the results of a study (Gissel and Johnstone 2017) in which we manipulate partner leadership in terms of engendering a safe (unsafe) psychological environment whereby subordinates are (are not) encouraged to speak up about fraud-relevant information. Participants are audit staff and seniors, and through the experimental case (based on the Krispy Kreme Doughnut Corporation fraud) they come to realize that they alone possess fraud-relevant information critical to the team's calibration of fraud risk. These auditors participate in a simulated brainstorming session containing the partner leadership manipulation and indicate changes in their willingness to share the fraud-relevant information with the team. We find that less-knowledgeable auditors become more willing to share their privately known, fraud-relevant information when the partner engenders a safe psychological environment as compared to an unsafe environment. In contrast, more-knowledgeable auditors are impervious to the relative psychological safety engendered by the partner; these individuals are equally willing to speak up regardless of the partner's leadership behavior.