The Use of Remedial Tactics in Negligence Litigation

Cornell, Robert M.; Warne, Rick C.; Eining, Martha M.

doi:10.2139/ssrn.1020089

Cited by 12 publications

(23 citation statements)

References 40 publications

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“…5 Some of these accounting studies suggest that outcome effects are nonnormative, either explicitly or by using terms that imply inappropriateness. For example, some studies describe individuals as being "vulnerable" or "susceptible" to outcome effects, or stress that evaluators "unlikely can ignore" adverse outcome information when evaluating auditors (e.g., Kinney and Nelson 1996;Kadous 2001, 441;Clarkson et al 2002;Cornell et al 2005).…”

Section: Judging Auditor Negligence Given Adverse Outcome Informationmentioning

confidence: 99%

Judging Audit Quality in Light of Adverse Outcomes: Evidence of Outcome Bias and Reverse Outcome Bias*

Peecher

Piercey

2008

Contemporary Accting Res

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Section: Judging Auditor Negligence Given Adverse Outcome Informationmentioning

confidence: 99%

Judging Audit Quality in Light of Adverse Outcomes: Evidence of Outcome Bias and Reverse Outcome Bias*

Peecher

Piercey

2008

Contemporary Accting Res

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“…An apology is a strategic, interpersonal communication tactic that improves relationships, fosters impression management, and resolves interpersonal conflict by expressing remorse and implicitly indicating the other party has worth and is deserving of an apology (Holtgraves 1989;Struthers et al 2008;Weiner 1995). While apologies express remorse, they do not require an expression guilt or wrongdoing (Cornell, Warne, and Eining 2009), which would occur in a confession, or "full-blown apology" (Weiner 1995, 239). Auditors who will be applying a high level of skepticism can apologize to the client employee for the inconvenience of taking up their time, without indicating they are behaving inappropriately.…”

Section: Apologymentioning

confidence: 99%

Auditor Skepticism and Client Ill Will

et al. 2019

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Professional skepticism is considered an essential component of audit quality. Consequently, research has focused on ways to increase skepticism by identifying factors that either limit or encourage its practice. However, research has yet to explore potential negative consequences of professional skepticism. We conduct two experiments to investigate if high levels of skepticism create ill will in audit clients, and how ill will affects the auditor-client relationship and audit quality. In the first experiment, we find that high skepticism creates ill will in the client, which increases the likelihood the client recommends switching auditors and decreases the amount of evidence provided to the auditor. We find that auditors can ingratiate themselves with the client as an intervention to decrease the development of ill will and mitigate its adverse effects. In our second experiment, we examine if client pressure to persuade the auditor of their accounting position mitigates the relationship between high skepticism and ill will. We find an interaction such that if the evidence does not support the accounting treatment the client recommends, a high level of auditor skepticism does not cause clients to experience as much ill will toward the auditor. We contribute to the literature by investigating a new empirical construct, client ill will, and developing a more nuanced perspective of the interactions between auditors and their clients.

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“…There is vast literature examining how jurors evaluate negligence in psychology (e.g., Hastie 1993) and applied disciplines (e.g., medicine; Vidmar 1997). Many auditor negligence studies use Kadous's (2000) application of motivated reasoning (Kunda 1990) as a theoretical framework (e.g., Kadous 2001;Cornell et al 2009). This framework asserts that, to maintain their belief in a just world (Walster 1966), jurors are motivated to blame audit firms for the negative consequences associated with alleged audit failures.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Undergraduate students are typically younger and better educated than the average juror, but a meta-analysis found that their negligence assessments are indistinguishable from those of older mock jurors and actual jurors (Bornstein 1999;Zickafoose and Bornstein 1999). Accounting studies have demonstrated the robustness of these results (Kadous 2001;Cornell et al 2009;Kadous and Mercer 2012). Although prospective jurors with accounting knowledge are typically eliminated in voir dire (Lilly 2001), participants rate themselves as having minimal familiarity with the lease accounting standards that led to the misstatement (0 = very unfamiliar, 10 = very familiar; mean = 0.99).…”

Section: Participantsmentioning

confidence: 99%

“…standards (e.g., Donelson et al 2012;Kadous and Mercer 2012;Cornell et al 2014) and others have examined audit firm defense tactics (e.g., Kadous 2001;Lowe, Reckers, and Whitecotton 2002;Cornell, Warne, and Eining 2009), ours is one of only two studies (along with Kadous and Mercer [2012], who find that auditors can mitigate the elevated litigation exposure associated with imprecise standards by herding to industry norms) to simultaneously examine both issues. In joining these literatures, we demonstrate that the elevated litigation exposure associated with imprecise standards is highly manageable for audit firms through implementable alternatives to herding to industry norms.…”

Section: Introductionmentioning

confidence: 96%

See 1 more Smart Citation

The Effects of Accounting Standard Precision, Auditor Task Expertise, and Judgment Frameworks on Audit Firm Litigation Exposure

Grenier

Pomeroy

Stern

2014

Contemporary Accting Res

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Recent research suggests that adopting imprecise accounting standards elevates audit firm litigation exposure and could undermine auditor objectivity if audit firms respond by herding to industry norms. This paper reports the results of two experiments that demonstrate how audit firms can effectively mitigate the elevated litigation exposure without herding to industry norms by staffing engagements with recognized technical experts, using judgment frameworks and automated decision aids, and providing persuasive evidence of adherence to auditing standards. We find that judgment frameworks are particularly well‐suited for defending judgments under imprecise standards, and represent a cost‐effective alternative to using technical experts. However, our results also indicate that judgment frameworks may provide a safe harbor for relatively low‐quality judgments when those frameworks are used under precise standards. We discuss implications for audit firms, courts, and regulators that currently conduct or evaluate audits within and across jurisdictions where the precision of accounting standards varies considerably.

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The Use of Remedial Tactics in Negligence Litigation

Cited by 12 publications

References 40 publications

Judging Audit Quality in Light of Adverse Outcomes: Evidence of Outcome Bias and Reverse Outcome Bias*

Judging Audit Quality in Light of Adverse Outcomes: Evidence of Outcome Bias and Reverse Outcome Bias*

Auditor Skepticism and Client Ill Will

The Effects of Accounting Standard Precision, Auditor Task Expertise, and Judgment Frameworks on Audit Firm Litigation Exposure

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