Outcome information and the "expectation gap": the case of loss contingencies

Article Abstract:

An experiment was conducted to examine two components of a potential 'expectation gap' between the ex ante judgments of auditors about proper audit report reference to a loss contingency and the ex post judgments of nonauditors who know that the same contingency has been negatively resolved. In this study, the first component is the difference between auditors' and nonauditors' ex ante judgments when both get preresolution information only. The other is the difference between ex ante judgments of nonauditors receiving preresolution information and ex post judgments of auditors tipped of the unfavorable resolution of the contingency. Results showed that nonauditors' assessments of the requirements are affected very unfavorable outcome information. However, auditors' ex ante conservatism may outweigh the impact of unfavorable outcome information on nonauditors' judgments. Auditors are more conservative than nonauditors ex ante.

Research, Corporation reports, Company reports

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Audit firm portfolio management decisions

Article Abstract:

The client acceptance and client continuance decisions of a large audit firm are examined to provide empirical evidence on the extent and nature of risk avoidance that the firm uses to purposefully manage its client portfolio. The result shows no evidence that audit pricing affects the client acceptance and continuance decisions of this firm, controlling for risk and other client characteristics.

United States, Analysis

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Confidence and investors' reliance on disciplined trading strategies

Article Abstract:

The authors indicate that investor overconfidence can be mitigated by portfolio management rather than by reliance on a single trading strategy.

Models, Evaluation, Investments

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