The Effect of Opaque Audit Methods and Auditor Ownership on Reliance on Independent Expectations

• In Event: Complex Estimates

Abstract

Increasing access to data and advanced statistical methods can help auditors generate independent expectations of estimates, but expectations are not useful unless auditors rely on them. However, advanced methods are likely more opaque, which affects understanding of the output of the methods. I predict that auditors rely less on independent expectations generated with more opaque audit methods. I further predict that developing psychological ownership of independent expectations increases reliance on expectations generated using more opaque methods, while ownership is not critical for reliance on those generated using less opaque methods. In an experiment with senior auditors, I find results supporting my predictions, except that reliance on independent expectations generated with more opaque methods further depends on task experience. Specifically, when using more opaque methods, involvement can have a positive (negative) effect on reliance when auditors have more (less) task experience. This study provides insights into auditors’ use of independent expectations and advanced methods that are becoming more pervasive in practice.

Author

• Kathryn Holmstrom, Georgia Institute of Technology