Speak Up or Shut Up? The Moderating Role of Credibility on Auditor Remedial Defense Tactics

Abstract

SUMMARYIn cases of alleged audit failure, auditors can make general statements regarding the quality of their work, or other statements intended to decrease juror assessments of auditor negligence. In this study, we examine how the perceived credibility of these remedial defense tactics moderates their effect on juror assessments of auditor negligence in cases of undetected fraud. We predict and find experimental evidence that remedial tactics result in lower negligence assessments when such tactics are perceived to be credible, but “backfire” (i.e., result in higher negligence assessments) when perceived as not credible. We also predict and find that credibility is compromised either when client importance is high, or when a remedial tactic is implemented by an audit firm's local (as opposed to national) office. As such, we find that remedial tactics result in lower negligence assessments when client importance is low and the tactics are implemented by a firm's national office, but result in higher negligence assessments when client importance is high, irrespective of the tactic's source (local versus national).Data Availability: Available upon request.