Influence of Professional Skepticism on Audit Evidence Quality and Audit Report Quality: Evidence from an Emerging Audit Market

Abstract

Professional skepticism is widely recognized as a cornerstone of auditing, yet empirical evidence is limited on how it translates into measurable audit-quality outcomes. Drawing on agency theory, signaling theory, and judgment and decision-making (JDM) theory, this study develops and tests a multi-level framework linking auditor skepticism to audit evidence quality and audit report quality. Agency theory predicts that skepticism strengthens monitoring and reduces information asymmetry; JDM theory suggests that skepticism mitigates cognitive bias and enhances evidence evaluation; and signaling theory implies that rigorous skeptical assessment enhances the credibility of audit reporting as a market signal. Using survey data from 285 audit managers in an emerging market setting, we find that professional skepticism is strongly and positively associated with both audit evidence quality and audit report quality. Regression analyses indicate that skepticism accounts for substantial variation in both the audit process and reporting outcomes. We further document significant differences across audit firm size categories, suggesting that institutional context conditions the effectiveness of skeptical judgment. The findings contribute to the audit literature by integrating behavioral and economic theories of auditing, empirically linking cognitive traits to both audit process and output quality, and extending skepticism research beyond developed markets. Overall, the results position professional skepticism as a structural determinant of audit quality with implications for agency cost reduction and the credibility of financial reporting.