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New study finds honesty-humility is key to auditors monitoring quality

External auditors play a vital role in upholding the accuracy of financial reports. However, recent high-profile accounting scandals have raised concerns about their effectiveness, sparking questions about why auditors sometimes fail to flag financial discrepancies.

In a new study from researchers at the Tepper School of Business at Carnegie Mellon University and the University of Denver, researchers examined whether two personality traits—honesty-humility and agreeableness—influence an auditor's likelihood to report financial misstatements. The findings are in the journal Carnegie Mellon University Library Publishing Service.

The study's findings reveal that auditors with higher honesty-humility scores were more likely to prioritize professional integrity and report financial infractions, while those with lower scores did not. Agreeableness—often associated with conflict avoidance and a desire for social harmony—did not reliably affect auditor reporting behavior, suggesting that this trait may not be as crucial for ensuring audit quality.

"Personality traits can play a key role in identifying individuals who will communicate disagreement with clients and effectively uphold financial reporting standards," explained Taya Cohen, Professor of Organizational Behavior and Business Ethics at Carnegie Mellon's Tepper School of Business, who coauthored the study.

"Our findings show that screening auditors for honesty-humility could enhance monitoring quality and help prevent costly oversight failures."

The study explored the HEXACO model of personality, which identifies six dimensions of personality (honesty-humility, emotionality, extraversion, agreeableness, conscientiousness, and openness), across two experiments, one of which involved approximately 200 certified public accountants. HEXACO honesty-humility, characterized by fairness and modesty, was the only trait to consistently predict better monitoring quality.

"Given the critical role of auditors in preventing financial misreporting, these findings are very relevant," says Lily Morse, Assistant Professor of Management at the University of Denver's Daniels College of Business, who led the study. Morse received her Ph.D. at the Tepper School of Business.

"Organizations should consider hiring auditors who display high levels of honesty-humility and provide interventions for those who could benefit from developing behaviors characteristic of this trait."

While the study provides valuable insights, the authors recommend further research to test their findings across different types of auditing environments and with varied measures of auditor fraud detection.