PCAOB Regulatory Alternatives to Inspection for Influencing Auditor Judgments

• In Event: Auditor Judgment II

Abstract

We experimentally examine the effects of Critical Audit Matter (CAM) expectations on auditors’judgments and decisions during audit planning using a sample of audit partners and senior managers. We further investigate how CAM expectations and PCAOB inspection focus jointly affect auditors’ judgments during fieldwork. We find that when auditors anticipate a CAM during planning, they evaluate the risk of material misstatement in the related account as higher. Additionally, auditors with a CAM expectation are significantly more likely to indicate a need to follow-up with additional audit procedures during fieldwork, but this positive outcome comes at the expense of a reduced likelihood of following-up on issues in accounts without a CAM expectation. Auditors primed with a PCAOB inspection focus are significantly more likely to indicate a need to follow-up in both focal and non-focal accounts. Interestingly, CAM expectations and PCAOB inspection focus interact in unexpected ways to nullify the increased likelihood of following up in the focal account. Our study contributes to the literature by demonstrating how CAM expectation and PCAOB inspection focus influence auditor judgments and decisions.

Authors

• Michelle McAllister, Bryant University

• Brian C Fitzgerald, Northeastern University