Auditors’ Comfort with Uncertain Estimates: More Evidence Is Not Always Better

38 Pages Posted: 28 Oct 2016 Last revised: 10 Jan 2019

Date Written: January 1, 2019

Abstract

Prior research generally presumes that auditors are more comfortable with better-supported management estimates because more support reduces the chance of misstatement; however, information processing theory suggests that auditor comfort is only increasing in evidential support to the extent that they need more support to be confident in their beliefs. Once auditors are confident, more support can make them less comfortable because it presents a potential challenge to their beliefs. I investigate this notion using an experiment with experienced auditors. I find that when estimate uncertainty is extreme, auditors are more comfortable with more evidential support; however, I find that when estimate uncertainty is moderate, auditors are more comfortable with less evidential support. Consistent with processing theory, further analyses reveal that more support provided in the moderate uncertainty condition did not change auditors’ confidence in their estimates but was perceived to make their estimates more difficult to defend. These findings highlight how auditors’ desires and needs to defend their judgments impact how they evaluate evidential support early in the audit process.

Keywords: Auditing estimates; auditor judgments; audit evidence; auditor comfort; uncertainty

Suggested Citation

Rowe, Stephen P., Auditors’ Comfort with Uncertain Estimates: More Evidence Is Not Always Better (January 1, 2019). Accounting, Organizations and Society, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2856624 or http://dx.doi.org/10.2139/ssrn.2856624

Stephen P. Rowe (Contact Author)

University of Arkansas ( email )

Business Bldg. 450
Fayetteville, AR 72701
United States

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