The Impact of Proposed Changes to the Content of the Audit Report on Jurorss Assessments of Auditor Negligence

Abstract

This study examines how two potential changes to the audit report affect jurors’ assessments of auditor liability. We find that simply identifying a CAM (CAM) in the audit report does not significantly affect auditors’ negligence likelihood, but jurors are more likely to find auditors negligent when the CAM paragraph includes a description of the specific audit procedures that the auditor performed to address the identified matter. Further, our results suggest that clarifying the meaning of reasonable assurance in the audit report mitigates the negative unintended consequences of this expanded disclosure and significantly reduces the likelihood that auditors are found negligent. These results are robust to using university students or participants recruited through online platforms as proxies for jurors. These results inform practitioners, standard setters, and academics on how the proposed changes to the audit report affect juror’s decision making and auditors’ ability to defend their work.