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  • Jennifer M Mueller-Phillips
    Comparing Auditor versus Non-Auditor Assessments of Auditor...
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.09 Litigation Risk, 11.0 Audit Quality and Quality Control in Auditing Section Research Summaries Space public
    Comparing Auditor versus Non-Auditor Assessments of Auditor Liability: An Experimental Investigation of Experts’ versus Lay Evaluators’ Judgments
    Practical Implications:

    While the results of this study are not conclusive, both expert panels of auditors and lay jurists rely on different, legally irrelevant inputs when making assessments of auditor liability. Auditor evaluators rely more on their emotional connections to other auditors while lay evaluators focus more on plaintiff losses as evidence of negligence. This study is only a first step in determining whether expert panels of auditors would improve the judicial process.


    Reffett, A., B. E. Brewster, and B. Ballou. 2012. Comparing Auditor versus Non-Auditor Assessments of Auditor Liability: An Experimental Investigation of Experts' versus Lay Evaluators' Judgments. AUDITING: A Journal of Practice & Theory 31 (3): 125-148.

    auditor litigation; expert jurors; lay jurors; liability assessments.
    Purpose of the Study:

    Critics of the legal system argue that the use of lay jurors to judge cases of auditor negligence results in unfair and inaccurate decisions about auditor liability because lay jurors often misunderstand both the scope of an audit and the responsibilities of an auditor. Previous research studies have suggested that courts rely on panels of experienced auditors instead of lay jurors in cases regarding auditor liability. This study investigates whether and how auditors’ and lay evaluators’ judgments differ from each other. The findings should be important to standards setters and regulators as they decide whether auditors should be allowed to judge auditor liability cases.

    Design/Method/ Approach:

    The study was administered sometime prior to 2012 via an online experiment e-mailed to participants. The participants included 51 currently practicing auditors (average of 7.5 years of experience; 48 from Big-N firms) and 54 non-accounting undergraduate students who represented lay jurists. The experiment presented a case that presented fictional details of a mining company, a financial statement fraud at the company and a subsequent auditor negligence lawsuit. After reading the case, participants respond to questions about auditor negligence and other related issues.

    • The authors find that auditors were much less likely to rely on plaintiff losses in making a decision about liability than were non-auditor participants.
    • Auditors are more sensitive to changes in audit quality, meaning that they assigned a higher probability of auditor negligence, on average, in situations where audit quality was supposedly low.
    • Non-auditor participants’ average probability of negligence assessments did not significantly differ between audit quality conditions, suggesting audit quality was not a factor in their decision-making.
    • When an auditor was found to be negligent, auditor participants assigned less severe punishments than non-auditor participants.
    • The authors also test how emotional connection interacts with judgment and show that auditor evaluators rely on their commonalities as audit professionals when making judgment decisions of auditor negligence.
    Audit Quality & Quality Control, Risk & Risk Management - Including Fraud Risk
    Litigation Risk