How Do Look-Back Analyses and Evidence Specificity Affect Auditors’ Planning Judgments?

The Accounting Review, Forthcoming (Doi.org/10.2308/tar-2016-0660)

49 Pages Posted: 28 Apr 2016 Last revised: 29 Feb 2020

See all articles by Ann G. Backof

Ann G. Backof

University of Virginia - McIntire School of Commerce

Roger D. Martin

University of Virginia - McIntire School of Commerce

Jane M. Thayer

Georgia Institute of Technology

Date Written: January 22, 2020

Abstract

During a look-back analysis, auditors review prior-period evidence to understand estimation inaccuracies and assess the reliability of management’s estimation process. We find that evidence specificity moderates the relation between the consistency of an estimation inaccuracy with management’s incentives and auditors’ reliability assessments. The direction of an estimation inaccuracy has no effect on auditors’ reliability assessments when the prior-period evidence is less specific. When prior-period evidence is more specific, auditors report the highest (lowest) reliability assessments of management’s estimation process when an estimation inaccuracy is inconsistent (consistent) with management’s incentives. Auditors’ low reliability assessments in the more specific, consistent condition, however, do not translate to high risk assessments. Instead, specificity has a main effect on auditors’ risk assessments. A follow-up experiment reveals, though, an inverse relation between auditors’ reliability and risk assessments when auditors are provided procedures to address various levels of assessed misstatement risk.

Keywords: Look-back analysis, Complex estimates, Prior-period evidence, Estimation inaccuracy direction

Suggested Citation

Backof, Ann G. and Martin, Roger Dean and Thayer, Jane M., How Do Look-Back Analyses and Evidence Specificity Affect Auditors’ Planning Judgments? (January 22, 2020). The Accounting Review, Forthcoming (Doi.org/10.2308/tar-2016-0660), Available at SSRN: https://ssrn.com/abstract=2770208 or http://dx.doi.org/10.2139/ssrn.2770208

Ann G. Backof (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Roger Dean Martin

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Jane M. Thayer

Georgia Institute of Technology

Atlanta, GA 30332
United States

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