The Effects of Specialist Type and Estimate Aggressiveness on Juror Judgments of Auditor Negligence
Posted: 6 Dec 2015 Last revised: 5 Dec 2018
Date Written: November 26, 2018
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
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