Auditor Mindsets and Audits of Complex Estimates
47 Pages Posted: 1 Aug 2014 Last revised: 25 Oct 2015
Date Written: October 8, 2014
Auditors experience significant problems auditing complex accounting estimates, and this increasingly puts financial reporting quality at risk. Based on analyses of the specific errors that auditors commit, we propose that auditors need to be able to think more broadly and incorporate information from a variety of sources in order to improve audit quality for these important accounts. We experimentally demonstrate that a deliberative mindset intervention improves auditors’ ability to identify unreasonable estimates by improving their ability to identify and incorporate into their analyses contradictory information from diverse parts of the audit and improving their ability to think critically about the evidence. We perform additional analyses to demonstrate that our intervention improves auditor performance by causing them to think differently rather than simply to work harder. We demonstrate that critical thinking can improve the identification of unreasonable estimates and, in doing so, we provide new directions for addressing audit quality issues.
Keywords: Accounting estimates, audit quality, fair value, impairment, mindset, professional skepticism
JEL Classification: M40, M41, G10
Suggested Citation: Suggested Citation