Why Are Auditors Blamed When Something Goes Wrong? Experimental Evidence

• In Event: Continental Breakfast - Research and Education Forum
  In Roundtable Session: Table 13: Auditor Liability 2

Abstract

We investigate the audit profession’s claim that auditors are used as the whipping boy and are blamed by the public when an accounting fraud is revealed. While we discuss the two main explanations put forth for this phenomenon by the auditing profession – the public’s poor knowledge of the auditing process and financial incentives to blaming auditors – we contribute by further analyzing the auditing profession’s active role in the “blame game”. We argue that an audit firm plays an active role by communicating its role as an assurance provider to the public. We conduct a 2x2 between-subjects experiment with non-professional investors based on an actual fraud case. We manipulate the financial incentive for an investor to blame the audit firm (audit firm with or without “deep pockets”) and the communication strategy of the audit firm (active assurance provider role communication vs. no such communication). Based on a questionnaire administered three weeks in advance to the experiment, we also test the influence of participants’ auditing knowledge on blaming behavior. Our results show that audit firms with deep pockets and audit firms that actively communicate their assurance provider role receive significantly higher blame. In addition, the latter effect is stronger for participants with high auditing knowledge than for participants with low auditing knowledge. Moreover, the less knowledge participants had of the auditing process, the more blame they were likely to assign to the audit firm. Our results show that a “trust us” communication strategy fires back when something goes wrong.

Authors

• Emna Ben Saad, ISCCB University of Tunis Carthage

• Florian Hoos, HEC Paris

• Cedric Lesage, HEC Paris