What, If Anything, Can Auditors Do to Combat Jurors’ Propensity to Penalize Auditors for Identifying and Investigating Fraud Risks?

• In Event: Auditor Liability

Abstract

Prior research finds that jurors are more likely to hold auditors liable for undetected fraud when the auditors explicitly investigated for the fraud. Applying the story-model of juror judgment (Hastie 2008), we investigate three potential moderators of this disconcerting effect: (1) evidence persuasiveness; (2) investigation trigger (whether the investigation was deliberate or random); and (3) a form of juror distrust. We find that, between-participants, evidence persuasiveness increases jurors’ negligence assessments, but only when the investigation was deliberate (i.e., risk-based). Further, highly distrustful jurors are more likely to penalize auditors for obtaining increasingly persuasive evidence. Consistent with the story model, these moderating effects are mediated by narratives jurors use in assessing auditor negligence. Within-participants results suggest that jurors’ propensity to penalize auditors who acquire more persuasive evidence is unintentional. Overall, auditors’ exposure to this unintentional penalty decreases with random investigation triggers and removal of highly distrustful jurors from the jury pool.

Authors

• Mark Peecher, University of Illinois at Urbana–Champaign

• Andrew Buthod Reffett, Miami University

• Aaron Zimbelman, University of South Carolina