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

See all articles by Kathy R. Petroni

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Mark S. Beasley

North Carolina State University

Abstract

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

Petroni, Kathy Ruby and Beasley, Mark S., Errors in Accounting Estimates and Their Relation to Audit Firm Type. JOURNAL OF ACCOUNTING RESEARCH, Vol. 34 No. 1, Spring 1996. Available at SSRN: https://ssrn.com/abstract=2560

Kathy Ruby Petroni (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

Mark S. Beasley

North Carolina State University ( email )

Box 8113
Raleigh, NC 27695-8113
United States
919-515-6064 (Phone)
919-515-4446 (Fax)

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