The role of valuation specialists in auditing complex estimates
Griffith, Emily Elaine
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Valuation specialists play an increasingly important role in auditing complex accounting estimates, yet little is known about what specialists do to help auditors evaluate estimates, how auditors use specialists’ work to make judgments about estimates, and how specialists’ involvement affects audit quality in this setting. I use multiple methods to address these questions. First, I interview 28 auditors with extensive experience using valuation specialists to audit estimates to understand what procedures specialists perform, how auditors review specialists’ work and incorporate it into their judgments, and what problems arise out of this arrangement. I find that while valuation specialists perform many of the most difficult and important elements in auditing estimates, auditors retain the final responsibility for making overall conclusions about estimates. I also identify a tendency among auditors to make valuation specialists’ work conform to the audit team’s prevailing view, which suggests that auditors may be able to more effectively use their specialists’ work. Second, I experimentally investigate the conditions under which auditor judgments about estimates incorporate valuation specialists’ work more effectively. Specifically, I examine how auditors’ perceptions of their clients’ source credibility influence auditors’ interpretation of specialists’ caveats on their own results. I predict and find that auditors’ evaluation of evidence related to a biased estimate and subsequent judgments benefit from specialists’ caveats when auditors perceive their clients to be less credible, but auditors who perceive their clients to be more credible discount specialists’ caveats and judge a biased estimate as more reasonable. Collectively my findings inform academics, regulators, and practitioners about the role of valuation specialists in auditing estimates and the implications of specialists’ involvement for audit quality in this important area.