Perceptions of Auditor Responsibility: Views of the Judiciary and the Profession

Abstract

A vital concern to the international auditing community is the litigation risk created by the ‘expectations gap’, the existence of potential differences between societal views of the scope of auditor responsibility and those of audit professionals. The focus of this study is to investigate the role that factors identified as important in professional audit standards and in the international press play in attributions of auditor responsibility in two important audit contexts: fraud and going concern. With respect to fraud detectability, the factors investigated were collusion and materiality, while those factors related to going concern predictability were evidence reliability and timing of unpredicted events. US auditors and practicing judges participated in the study. Consistent with expectations, the results indicate that auditors' attributions of responsibility were significantly affected by the detectability and predictability variables examined. The effect of the factors on judges' attributions of auditor responsibility was moderated by their general attitudes toward the auditing profession. Specifically, in the absence of mitigating factors, judges with unfavorable attitudes made greater responsibility assessments than those with favorable attitudes. However, in the presence of mitigating factors such as collusion or when the time period between the audit opinion date and bankruptcy was long, judges with unfavorable attitudes made significantly lower responsibility assessments. Lastly, while evidence reliability and materiality significantly affected auditors' attributions, they did not play a role in the attributions of the judges.