The Effects of Audit Quality and Consequence Severity on Juror Evaluations of Auditor Responsibility for Plaintiff Losses

This study investigates whether providing higher quality audits increases auditors' chances of avoiding legal liability. Negligence rules hold auditors responsible for plaintiff losses only when the quality of the audit provided fails to meet standards of care. The results of my experiment suggest that the ex post observed consequences of audit failure can affect the standards of care to which jurors hold auditors. Specifically, participants serving in the role of jurors assessed higher standards of care for auditors when the consequences of audit failure were more severe. Furthermore, when the consequences of audit failure were more severe, participants' evaluations of the auditor did not depend on the quality of the audit provided—auditors who provided higher quality audits were evaluated just as negatively as those who provided lower quality audits. In contrast, when audit failure led to only moderately negative consequences, auditors who provided higher quality audits received more favorable evaluations. These results suggest that providing higher quality audits will not necessarily protect auditors from legal liability when the consequences of audit failure are severe.