The Effects of the Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit Quality, Assurance, and Auditor Negligence

Auditing: A Journal of Practice & Theory, 41(1): 25-48

54 Pages Posted: 21 Aug 2017 Last revised: 7 Mar 2022

See all articles by Dereck Barr-Pulliam

Dereck Barr-Pulliam

University of Louisville

Helen L. Brown-Liburd

Rutgers University, Newark - Rutgers Business School - Department of Accounting and Information Systems

Kerri Ann Sanderson

Bentley University

Date Written: February 1, 2022

Abstract

Advanced audit data analytics tools allow auditors to analyze the entire population of accessible client transactions. Though this approach has measurable benefits for audit efficiency and effectiveness, auditors caution that it does not incrementally increase the level of assurance expressed relative to the financial statements’ fair presentation. We experimentally examine whether the audit testing methodology (audit data analytics versus traditional sampling) and the type of internal control (ICFR) opinion auditors issue (unqualified versus adverse) affect jurors’ perceptions of auditor negligence after an audit failure. We predict and find that when auditors issue an unqualified ICFR opinion, jurors make higher negligence assessments when auditors employ traditional statistical sampling techniques than when they employ audit data analytics. We also find that when auditors issue an adverse ICFR opinion, jurors attribute less blame to auditors and correspondingly more blame to the investor for an audit failure. Additional analyses reveal that jurors perceived the use of audit data analytics as an indicator of higher audit quality and are less likely to find auditors negligent. However, jurors do not perceive a difference in the level of assurance provided by the audit opinion when auditors use ADAs or traditional sampling testing methods. Our study informs regulators, practitioners, and academics about the contextual effects of the ICFR opinion and the perceived assurance and potential litigation effects of using advanced technological tools in the audit.

Keywords: auditor liability, audit data analytics, audit quality, statistical sampling

JEL Classification: M41, M42

Suggested Citation

Barr-Pulliam, Dereck and Brown-Liburd, Helen L. and Sanderson, Kerri Ann, The Effects of the Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit Quality, Assurance, and Auditor Negligence (February 1, 2022). Auditing: A Journal of Practice & Theory, 41(1): 25-48, Available at SSRN: https://ssrn.com/abstract=3021493 or http://dx.doi.org/10.2139/ssrn.3021493

Dereck Barr-Pulliam (Contact Author)

University of Louisville ( email )

110 West Brandeis Avenue
Louisville, KY 40208
United States
502-852-4834 (Phone)

HOME PAGE: http://https://business.louisville.edu/faculty-research/faculty-directory/14229/

Helen L. Brown-Liburd

Rutgers University, Newark - Rutgers Business School - Department of Accounting and Information Systems ( email )

180 University Avenue
Newark, NJ 07102
United States

HOME PAGE: http://raw.rutgers.edu/helenbrownliburd

Kerri Ann Sanderson

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
981
Abstract Views
3,529
Rank
35,699
PlumX Metrics