Errors in Accounting Estimates and Their Relation to Audit Firm Type
JOURNAL OF ACCOUNTING RESEARCH, Vol. 34 No. 1, Spring 1996
Posted: 23 Apr 1998
We assess accuracy and bias in the accounting estimate of outstanding claim losses reported in the audited statutory financial statements of 197 property-casualty insurers during 1979-1983. Our analysis shows that claim loss estimation errors exceed materiality in over 90% of our sample. For errors that exceed materiality, the average absolute error, determined with the benefit of hindsight, is over 17 times materiality and over 8% of assets. Regression models generally do not support differences in estimate accuracy or bias across audit firm type, and therefore suggest that estimation error characteristics are not a basis for differentiating among auditors.
JEL Classification: M4, G22
Suggested Citation: Suggested Citation