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Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Research indicates that auditors have an impoverished understanding of trial preparation factors that, independent of audit quality, can significantly elevate audit litigation risk. As the scholarly literature sheds little insight about the nature and implications of these factors, we identify what factors audit litigators consider in trial preparation, how they expect these factors to affect litigation outcomes, and how they attempt to leverage these factors. To do so, we interview 39 audit litigators, who identify factors germane to trial venues, jury pools, and case arguments. Guided by the elaboration likelihood model, we construct a framework that predicts these factors influence litigation outcomes by changing jurors' motivation and/or capability to elaborate. Importantly, we find that litigators who defend (sue) auditors strategically maneuver these factors to increase (decrease) the likelihood of higher juror elaboration, because higher elaboration is favorable to auditors. We discuss implications of our results for practice and research. JEL Classifications: K22; K40; K41; M4; M41; M42. [ABSTRACT FROM AUTHOR]

Auditors are expected to identify and resolve material misstatements (MMs) in management's financial statements. However, beyond the audit opinion, the audit process is opaque. To address this, we independently survey 462 audit partners and interview 24 audit partners, CFOs, and audit committee members on how partners assess and address MM risk, resolve MMs, and the consequences of MMs. Partners identify MMs in approximately 9% (15%) of public (private) engagements and use qualitative factors to waive apparent MMs. Loan covenant and going‐concern issues increase MM risk more than earnings benchmark issues. Partners point to a variety of both auditor and client factors as threats to audit effectiveness. Partners often rely on rapport with management and involve the national office and audit committee in resolving MMs. Partner incentives around restatements are context specific. Our results provide new insights into the auditor's role in financial reporting that are relevant to academics, practitioners, and regulators. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

In this research note, we replicate Brazel, Jackson, Schaefer, and Stewart's (2016) study of how auditors evaluate skeptical behavior. Like the original study, we find that evaluators reward audit staff who exercise appropriate levels of skepticism and identify a misstatement (positive outcome). However, when no misstatement is identified (negative outcome), evaluators penalize staff who exercise appropriate levels of skepticism. One factor causing this outcome effect may be that exercising skepticism typically causes budget overages due to additional testing. Hence, we examine whether formally attributing the budget overage to skeptical judgments and actions in the audit budget file reduces outcome effects. However, while replicating the initial effect across three separate studies, we have been unable to reduce this effect. Thus, it is clear that the outcome effect in this context is very robust. Data Availability: Contact the authors. [ABSTRACT FROM AUTHOR]

Auditors must ensure that their audit plans budget sufficient time for key audit steps. Research has shown that insufficient audit time budgets can be detrimental to audit quality. We examine whether framing audit steps negatively (e.g., assess whether management's assumptions are not appropriate) increases time budgets—particularly for steps in which the auditor perceives that performance quality is less verifiable, and thus most at risk of being performed with low quality. First, we report the results of analyses indicating that, in practice, audit steps are predominantly framed positively, potentially resulting in smaller time budgets. We then report the results of an experiment in which 50 experienced audit managers budget time for an audit program that tests a Level-3 fair-value estimate. Prior research and Public Company Accounting Oversight Board (PCAOB) inspections indicate that this is a challenging audit area, vulnerable to allegations of low audit quality. The results support our predictions and suggest that reframing audit steps negatively would increase audit time budgets—an audit quality indicator—particularly for less-verifiable steps. [ABSTRACT FROM AUTHOR]