The Impact of Requiring Audit Documentation on Judgments of Audit Quality and Auditor Responsibility
Advances in Accounting Behavioral Research
ISBN: 978-1-80071-013-9, eISBN: 978-1-80071-012-2
Publication date: 20 January 2021
Abstract
In crafting Auditing Standard No.3 (AS3), a primary objective of the PCAOB was to reduce auditors' exposure to litigation by raising the standard of care for audit documentation. We examine whether the increased documentation requirements of AS3 affect legal professionals' perceptions of audit quality and auditor responsibility in the event of an audit failure. Our experiment consists of a 3 × 2 between-participants design with law students serving as proxies for legal professionals. The results of our experiment indicate that when an audit procedure, namely the investigation of inconsistent evidence, is not required to be documented, legal professionals perceive the performance of the work itself but not its documentation to significantly increase audit quality and reduce the auditor's responsibility for an audit failure. When documentation of the procedure is required, as per AS3, legal professionals perceive enhanced audit quality and reduced auditor responsibility only if the performance of the work is documented.
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Acknowledgements
Acknowledgments
Kenneth “Ken” Dalton passed away prior to the publishing of this manuscript. Ken was instrumental in many different aspects of this project from the collection and analysis of the data and review of the literature to the ultimate preparation of the manuscript. This paper is dedicated to the memory of Ken and to his family. The authors are grateful for the comments and suggestions of the research workshop participants at the University of Montana and Washington State University. We also acknowledge the helpful comments of Mike Ettredge, Mark Peecher, Robin Roberts, Susan Scholz, Ikseon Suh, Hun-Tong Tan, and Scott Whisenant. Research funding was provided by the Accounting and Information Systems Area at the University of Kansas and the Washington State University Department of Accounting.
Citation
McNellis, C.J., Sweeney, J.T. and Dalton, K.C. (2021), "The Impact of Requiring Audit Documentation on Judgments of Audit Quality and Auditor Responsibility", Karim, K.E., Fogarty, T., Rutledge, R., Pinsker, R., Hasseldine, J., Bailey, C. and Pitre, T. (Ed.) Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 24), Emerald Publishing Limited, Leeds, pp. 87-116. https://doi.org/10.1108/S1475-148820200000024004
Publisher
:Emerald Publishing Limited
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