The Impact of Audit Evidence Documentation on Jurors’ Negligence Verdicts and Damage Awards

Posted: 10 Sep 2012 Last revised: 25 Mar 2016

See all articles by Ann G. Backof

Ann G. Backof

University of Virginia - McIntire School of Commerce

Date Written: February 17, 2014

Abstract

Audit workpapers play a key role in auditor negligence trials, yet little is known about how workpaper documentation affects jurors’ decision making. I investigate how auditors’ documentation of their consideration of the alternative accounting treatments and their risk-based audit approach influence jurors’ negligence verdicts and damage awards. I find that documentation of their consideration of the accounting alternatives increases the likelihood that auditors are found negligent because it increases jurors’ perceptions of the foreseeability of the misstatement. However, when combined with documentation that explicitly links the audit risks to the work performed to address each risk, jurors award lower damage awards because they perceive auditors’ actions prior to the negligent act as more compliant with the auditing standards. My results highlight the consequences of more complete documentation on jurors’ evaluations of auditors and suggest the need for documentation policies that more effectively communicate the appropriateness of auditors’ professional judgments.

Keywords: audit documentation, auditor liability, culpable control model, damage awards

Suggested Citation

Backof, Ann G., The Impact of Audit Evidence Documentation on Jurors’ Negligence Verdicts and Damage Awards (February 17, 2014). Accounting Review, Vol. 90, No. 6, 2015, Available at SSRN: https://ssrn.com/abstract=2144508 or http://dx.doi.org/10.2139/ssrn.2144508

Ann G. Backof (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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