Re-Examining the Outcome Effect: Do Performance Evaluations Discourage Auditors’ Professional Skepticism?

SUMMARY Prior research shows that auditors exercising appropriate professional skepticism receive lower performance evaluations when they fail to identify misstatements compared with when they identify misstatements—recognized as an outcome effect. This robust finding has led to two common inferences, which we empirically examine: (1) supervisors penalize “fruitless skepticism” (Experiment 1), and (2) audit evaluation systems discourage professional skepticism, compromising audit quality (Experiment 2). In Experiment 1, we demonstrate that evaluation differences stem predominantly from positive reactions to misstatement identification. We find insufficient evidence to support negative reactions to nonidentification. In Experiment 2, we demonstrate that timely performance evaluations are critical: when auditors receive prompt feedback, they maintain appropriate professional skepticism in subsequent tasks, even when the initial task resulted in fruitless skepticism. Although our results confirm the evaluation gap documented in prior research, they reveal that outcome effects manifest differently than previously assumed and do not necessarily threaten audit quality. Data Availability: Data are available from the authors by request. JEL Classifications: M42.