Effects of Exposure to Subsequently Invalidated Evidence on Judgments of Audit Workpaper Preparers and Reviewers

42 Pages Posted: 29 Apr 2008 Last revised: 2 May 2008

See all articles by Seet-Koh Tan

Seet-Koh Tan

Nanyang Technological University (NTU) - Division of Accounting

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

Multiple version iconThere are 2 versions of this paper

Date Written: April 2007

Abstract

Auditors are routinely exposed to preliminary audit evidence that is subsequently found to be erroneous. In an experiment with auditors as participants, we show that subsequently invalidated evidence relating to a tender award to a client continues to influence auditors' interpretation of this evidence (in terms of their likelihood assessments of the client winning the tender), both for workpaper preparers and reviewers. This effect is mitigated for reviewers who have heightened awareness that their judgments will be communicated to the preparer, but not for preparers with heightened awareness of communication of their judgments to the reviewer. We find that these likelihood assessments mediate the effect of the invalidated evidence on auditors' going concern assessments. We also document that another consequence of preparers' exposure to the subsequently invalidated evidence is that they also fail to incorporate updated but non-erroneous evidence.

Keywords: Subsequently invalidated audit evidence, Audit review process, Communication of audit judgments

JEL Classification: M41, M49, C91

Suggested Citation

Tan, Seet-Koh and Tan, Hun-Tong, Effects of Exposure to Subsequently Invalidated Evidence on Judgments of Audit Workpaper Preparers and Reviewers (April 2007). Available at SSRN: https://ssrn.com/abstract=1126243 or http://dx.doi.org/10.2139/ssrn.1126243

Seet-Koh Tan (Contact Author)

Nanyang Technological University (NTU) - Division of Accounting ( email )

Singapore, 639798
Singapore

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

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