SUMMARY A primary concern facing the PCAOB's requirement of disclosing critical audit matters (CAMs) is increased auditor litigation risk. Evidence with Key Audit Matters from the U.K. indicates auditors may subsequently remove a CAM or continue to report the same CAM for several years. Therefore, we investigate the effects of CAM removal and duration on jurors' assessments of auditor negligence when there is a subsequent material misstatement due to fraud in the account related to the CAM. Using the Culpable Control Model, we predict jurors will assess higher auditor negligence when a CAM is removed than when a CAM is reported and when a CAM is reported for multiple years than for one year. Results from two experiments support our expectations, although results vary depending on complexity of the misstated account. Overall, our findings highlight a quandary for audit firms, where subsequent removal of a CAM increases auditor liability.

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Globalization defines the business world today, yet globalization also leads to many types of misunderstandings regarding ethics, motives, and trust. We apply the theory of social contracts for the purpose of aiding the understanding of moral diversity arising from globalization. Specifically, we seek to better understand how country of origin, and role within country, lead to community “microsocial” norms that inform social contract ethical judgments. A total of 695 managerial accounting professionals and accounting students from Italy and the U.S. completed the survey. Employing a moderated mediation model, we find that country of origin is significantly related to intended behaviors in two business situations, and this relationship is mediated by social contract ethical judgment. Further, the impact of national culture on social contract ethical judgment is moderated by role (professional versus student). Multiple mediation analysis supports our contention that contractual evaluations precede moral equity assessments and that both contractual and moral equity ethical judgments affect ethical intentions.

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