The auditor's going-concern decision: interaction of task variables and sequential processing of evidence

Article Abstract:

Recent findings show that sequential processing of evidence by auditors can induce non-normative responses such as presentation order and framing effects. An examination of this order effect was made on seventy audit partners and executives who were subjected to randomly assigned and manipulated conditions for framing. Auditors who assessed contrary evidence subsequent to mitigating variables released opinions that were marked by less changes as compared with auditors who evaluated evidence prior to the mitigating variables. These findings confirm the occurence of recency effects in the going-concern decisions of auditors as a result of sequential processing of evidence, and consequently provides supporting data on the occurrence of recency effects in belief revisions and reporting choices in an audit environment.

Analysis, Going concern (Accounting), Going concern

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Investors' recovery friction and auditor liability rules

Article Abstract:

A model was developed to examine the dynamics among liability regimes, audit effort, auditor penalties and investor welfare. In particular, this study investigates investor welfare under two different liability regimes for holding auditors liable for investor losses, namely, the due care regime and the strict liability regime. The investor shoulders the expected legal liability cost to the auditor in both regimes and the lawyer retains a fraction of any damages awarded by the court as a continent fee, referred to as the recovery friction. Findings revealed that the recovery friction results in second-best efforts by the auditor and the manager. Investor welfare was found to greater in the due care regime than in the strict liability regime because the anticipated litigation cost for the investor is lower.

Accounting, auditing, & bookkeeping, Accounting & Auditing Services, Accounting, Tax Preparation, Bookkeeping, and Payroll Services, Attorneys, Lawyers' fees, Negligence, Malpractice, Auditors, Contingency fees

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