Evidence on how different interventions affect juror assessment of auditor legal culpability and responsibility for damages after auditor failure to detect fraud

Brown, Timothy J.; Majors, Tracie M.; Peecher, Mark E.

doi:10.1016/j.aos.2020.101172

Cited by 23 publications

(12 citation statements)

References 55 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…29 Gutierrez et al (2018) use a difference-in-differences research design that compares the effects of the audit report between LSE premium and AIM companies over four years, including two years before and after September 2013, when the rules became mandatory only for premium companies. 30 Their main measures of incremental information are based on the short-window market reaction to the public distribution 28 Other studies substantially completed-but still not published-are Backof et al (2018) and Brown et al (2020). These two studies examine additional aspects of jurors' decisions in the presence of CAMs.…”

Section: Archival Studies Of the Uk Experiencementioning

confidence: 99%

The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

View full text Add to dashboard Cite

The new generation of expanded audit reports includes disclosures about significant matters in a company's financial reporting and its audit. These disclosures are a landmark change in auditors' responsibility to provide information to the public. I examine expanded reports in various jurisdictions, why they became mandatory, what the evidence from their implementation is, and whether they have fulfilled the expectations of regulators and other stakeholders. Expanded reports are intended to increase the information content and usefulness of audit opinions, to increase external monitoring of auditors and management, and to foster a more open conversation between auditors and users of financial reporting. However, existing regulatory requirements, conflicting auditors' incentives to provide new information, and evidence from the expanded reports' implementation call into question whether these objectives have been met. It is my hope that expanded reports are only a first step towards enhanced auditor reporting.

show abstract

Section: Archival Studies Of the Uk Experiencementioning

confidence: 99%

The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

View full text Add to dashboard Cite

show abstract

“…With respect to investor perceptions, Carver and Trinkle (2017) find that CAMs decrease the readability of the audit report, but they do not find an effect of CAMs on investor valuation judgments. With respect to auditor responsibility for a misstatement, Brown et al (2020) find in a jury setting that CAM disclosures significantly reduce assessments of auditor culpability for an undected fraud, but have no effect on damage assessments against auditors. Backof et al (2020) find that CAM disclosures increase mock jurors' assessments of auditor culpability in a setting in which the CAM involves a categorical determination, consistent with GHO.…”

mentioning

confidence: 99%

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

Kachelmeier

Rimkus

Schmidt

et al. 2020

Contemporary Accting Res

116

View full text Add to dashboard Cite

We present experimental evidence suggesting that critical audit matter (CAM) disclosures in the auditor's report involving areas of high measurement uncertainty forewarn users of misstatement risk. Specifically, in our first study with MBA students, financial analysts, and attorneys, we find that CAMs (i) lower premisstatement assessments of confidence in the financial statement area disclosed as a CAM, and (ii) lower assessments of auditor responsibility for a subsequently revealed misstatement in a CAM-related area. In our second study with student participants proxying as mock jurors, we find that the responsibility-mitigating effect of CAM disclosure is driven by CAM disclosures involving measurement uncertainty, as opposed to CAM disclosures involving categorical determinations. Combined, our findings help reconcile mixed evidence from prior research, supporting the view that the forewarning effect of CAM disclosures involving measurement uncertainty could mitigate perceived auditor responsibility for CAM-related material misstatements.

show abstract

“…3 By providing audit‐specific information in the audit report, CAM disclosures directly address concerns about the lack of information specific to an individual audit in the audit report (Asare and Wright 2012; Church et al 2008). However, concerns regarding unforeseen costs, including heightened litigation risk associated with the disclosure of audit‐specific matters of greatest concern (PCAOB 2011b, 2011c, 2011d, 2011e), prompted numerous studies investigating how audit‐specific CAM disclosures influence auditors' litigation exposure (Brasel et al 2016; Brown et al 2020; Gimbar et al 2016; Kachelmeier et al 2020).…”

Section: Background Theory and Hypothesis Developmentmentioning

confidence: 99%

“…Standard setters across the globe recently mandated the disclosure of audit‐specific critical audit matters (CAMs) in response to growing concerns about the usefulness of the audit report (ISA 701 ¶13(b), IAASB 2015b; PCAOB 2017). Recent research finds that in settings where CAMs are related to areas with measurement uncertainty (e.g., environmental restoration liability), auditors are not evaluated more harshly for an audit failure in an area related to the CAM disclosure included in the audit report (Brasel et al 2016; Brown et al 2020; Gimbar et al 2016; Kachelmeier et al 2020). However, Gimbar et al (2016) and Kachelmeier et al (2020) find that CAMs may actually increase auditors' litigation exposure, particularly in settings that are conducive to counterfactual thinking (e.g., classification decisions that invite and attract comparison) (Kachelmeier et al 2020).…”

Section: Introductionmentioning

confidence: 99%

The Importance of Clarification of Auditors' Responsibilities Under the New Audit Reporting Standards*

Backof

Bowlin

Goodson

2022

Contemporary Accting Res

View full text Add to dashboard Cite

Given the uncertainty regarding auditors' responsibilities, standard setters considered the need for clarification of technical terms such as reasonable assurance in the new audit reporting models. The PCAOB ultimately decided to exclude clarifying language from its final standard, while the Auditing Standards Board and IAASB made such language mandatory. Given the difference in reporting models, this study investigates the role clarification of reasonable assurance plays in auditor negligence. We predict and find that, absent clarification, jurors judge auditors to be more negligent when the audit report includes a related critical audit matters disclosure than when it does not. However, consistent with our prediction, clarifying what is meant by reasonable assurance mitigates this increase in auditors' liability exposure by reducing jurors' perceptions of auditors' personal control over the misstatement at the time of the audit. Thus, our evidence suggests that the PCAOB's decision to not include such language in the new audit reporting model may have been shortsighted given the potential for clarification to mitigate a potential negative unintended consequence to auditors' litigation exposure under the new audit reporting model.

show abstract

Evidence on how different interventions affect juror assessment of auditor legal culpability and responsibility for damages after auditor failure to detect fraud

Cited by 23 publications

References 55 publications

The art of conversation: the expanded audit report

The art of conversation: the expanded audit report

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

The Importance of Clarification of Auditors' Responsibilities Under the New Audit Reporting Standards*

Contact Info

Product

Resources

About