The impact of audit evidence documentation on jurors’ negligence verdicts and damage awards
Backof, Ann Gamble
MetadataShow full item record
Audit workpapers play a key role in auditor negligence trials, yet little is known about how the documentation in these workpapers affects jurors’ decision making. I experimentally investigate how auditors’ documentation of their risk-based audit approach and their consideration of alternative accounting treatments influences jurors’ auditor negligence verdicts and damage awards. I find that auditors are more likely to be found negligent when they document their consideration of the alternative accounting treatments because such documentation increases jurors’ perceptions of the foreseeability of the misstatement, a key determinant of auditors’ personal control. However, when this same documentation is combined with documentation of the risk-based audit approach that explicitly links the audit risks to the work performed to address each risk, jurors perceive auditors’ actions prior to the negligent act as most compliant with the auditing standards and consequently award the lowest damage awards. These findings inform academics, regulators, and auditors on the importance of audit documentation decisions on jurors’ decision making.