Auditor Mindsets and Audits of Complex Estimates

• In Event: Auditing of Complex Estimates

Abstract

Complex estimates are increasingly important to financial statements, but are difficult to audit. The uncertainty inherent in estimates implies that the “verification model” that auditors typically apply is less useful, and that auditors need to be able to think more broadly and incorporate information from a variety of sources in order to ensure high audit quality for management estimates. We experimentally investigate whether a deliberative mindset intervention improves auditors’ ability to identify unreasonable estimates. Consistent with theory, we find that auditors receiving a deliberative mindset intervention identify more seeded issues in a fair value estimate and evaluate that fair value with seeded errors as less reasonable than do auditors receiving an implemental mindset or no intervention, demonstrating that thinking more broadly improves the identification of unreasonable estimates.

Authors

• Emily Elaine Griffith, The University of Georgia

• Jacqueline S Hammersley, The University of Georgia

• Kathryn Kadous, Emory University

• Donald R Young, Georgia Tech