The Effects of Specialist Type and Estimate Aggressiveness on Juror Judgments of Auditor Negligence

Posted: 6 Dec 2015 Last revised: 5 Dec 2018

See all articles by J. Owen Brown

J. Owen Brown

Baylor University

Jonathan H. Grenier

Miami University - Department of Accountancy

Jonathan Pyzoha

Miami University - Department of Accountancy

Andrew Reffett

Miami University of Ohio

Date Written: November 26, 2018

Abstract

This study examines the interactive effects on jurors' auditor negligence assessments of two critical factors auditors consider when auditing complex estimates, the decision to use a specialist and the relative aggressiveness of management's estimate. Experiment 1 finds that jurors view auditors' acceptance of a more aggressive estimate as more justifiable, and are thus less likely to find the auditors negligent, when the auditors consulted with either an internal or external specialist when auditing the estimate. We do not, however, observe the same litigation benefits of using a specialist for less aggressive estimates. Experiment 2 extends these results by revealing jurors are less likely to find auditors negligent when the auditors use an external as opposed to an internal specialist, due to more favorable perceptions of external specialists' independence, leading to their audit procedures being viewed as more justifiable. However, we find auditors can accrue the same litigation benefits of using external specialists by having an external specialist review the internal specialists' work, as jurors perceive using both specialists as more justifiable. Overall, we find utilizing external specialists, either to directly test management estimates or to review internal specialists' work, can limit auditors' litigation exposure when auditing relatively aggressive complex estimates.

Keywords: Auditing, specialists, estimates, aggressiveness, auditor negligence

Suggested Citation

Brown, Owen and Grenier, Jonathan H. and Pyzoha, Jonathan and Reffett, Andrew, The Effects of Specialist Type and Estimate Aggressiveness on Juror Judgments of Auditor Negligence (November 26, 2018). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2699379 or http://dx.doi.org/10.2139/ssrn.2699379

Owen Brown

Baylor University ( email )

Waco, TX 76798
United States

Jonathan H. Grenier

Miami University - Department of Accountancy ( email )

800 East High Street
Oxford, OH 45056
United States
513-529-2013 (Phone)

Jonathan Pyzoha (Contact Author)

Miami University - Department of Accountancy ( email )

Miami University
800 E. High Street
Oxford, OH 45056
United States
513-529-3913 (Phone)

Andrew Reffett

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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