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    The Influence of Client Importance on Juror Evaluations of...
    research summary posted May 9, 2012 by The Auditing Section, last edited May 25, 2012, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management 
    The Influence of Client Importance on Juror Evaluations of Auditor Liability
    Practical Implications:

    The results of this study are useful for understanding what factors affect jurors’ decisions regarding whether, and to what extent, an auditor should be held responsible for audit failure. These results should be of interest to audit firms and their respective attorneys when making litigation decisions regarding whether to settle or pursue a jury trial.


    Brandon, D. M. and J. M. Mueller. 2006. The Influence of Client Importance on Juror Evaluations of Auditor Liability. Behavioral Research in Accounting 18: 1-18.

    client importance, auditor liability, juror evaluations, punitive, compensatory
    Purpose of the Study:

    Previous research suggests that there is a common perception that auditor independence is impaired by an economically important client (i.e. a client whose audit fees represent a large proportion of gross revenues). Evidence also suggests that client importance may even lead to a higher incidence of litigation against the auditor. For example, jurors may be more likely to blame and punish the  auditor if they perceive that the auditor had intentions or motives, such as profitability or client retention, to act in favor of the client.  This paper examines whether client importance is significantly related to juror evaluations of responsibility and blame as well as auditor liability and damage awards. 

    Design/Method/ Approach:

    The authors collected data from 187 undergraduate students enrolled in economics and introductory business courses. Participants reviewed a litigation case against the auditor of a bankrupt toy company for incorrectly providing a favorable audit report prior to the bankruptcy filing. Half of the participants reviewed a case which indicated that the client represented approximately 60% of the office revenues and half reviewed a case where the client represented approximately 2% of the office revenues.

    • The authors find that when an auditor is involved in litigation associated with an audit client that is financially more important to the auditor, participants evaluated the auditor as less objective, more blameworthy, and more deserving of punishment. A
    • Although, the authors do find that client importance significantly affects jurors’ liability assessments, the relationship can largely be attributed to independence perceptions. Thus, the authors conclude that client importance marginally affects punitive damage awards but does not influence compensatory damage awards.
    Independence & Ethics
    Impact of Fees on Decisions by Auditors & Managmeent
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