DOES AUDIT STRUCTURE AND ACCOUNTING/AUDITING KNOWLEDGE AFFECT JUDGMENTS IN AN AUDITOR LITIGATION SETTING?

Abstract

Litigation risk remains a major concern of accounting firms, which must abide by decisions made by judges or jurors with little or not expertise in accounting or auditing procedures. This paper tests whether specific descriptions of the audit structure employed by the accounting firm affect juror decisions of audit quality and auditor liability. Two groups of university students proxied for jurors. One group has little or no accounting knowledge, while the other group was comprised of auditing students, familiar with the expectations and requirements of an audit. Auditing students judged audit quality to be higher and auditor liability to be less in every scenario. However, decisions were unaffected by description or nature of the audit structure (either highly structured or unstructured).