The effect of using diagnostic decision aids for analytical procedures on judges' liability judgments

Abstract In recent years there has been increased litigation against independent auditors. In response, some auditing firms have adopted more structured audit processes in an effort to improve auditor consensus and performance. In this paper we explore the potential legal effects of employing diagnostic (analytical procedures) decision aids. Specifically, in a laboratory experiment, American general jurisdiction judges assessed auditor culpability after examining a case of alleged audit failure. It is our belief that once implemented, jurists may use practitioner-developed decision aids as an indicant of normative auditor behavior. That is, specifically, we propose that perceptions of audit firm liability will be lower in an environment in which a decision aid is fully utilized than in an environment where no decision aid is used. Likewise, we propose that perceptions of auditor liability will be higher when the decision aid is not fully utilized compared to when no decision aid is used. The results of this experiment do not provide support for hypothesis one. Full utilization of a decision aid did not decrease jurists' assessments of liability when the decision aid failed to isolate a financial statement error. The results, however, do provide support for hypothesis two. Less than complete utilization of a decision aid did increase jurists' assessments of liability.

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