In this dissertation, I investigate how experienced auditors recognize and respond to the degree of management’s evidentiary support and the level of estimate uncertainty when assessing management estimates.Drawing on information processing research, I predict that auditors can be more comfortable with management estimates, and expect a lower adjustment when there is alignment between the degree of estimate uncertainty and management’s evidentiary support (i.e. high uncertainty and more support or lower uncertainty and less support).I test my prediction using an experiment where experienced auditors evaluate an uncertain warranty estimate.I manipulate the level of uncertainty by varying the range of potential costs as either two-times or eight-times materiality, and I manipulate the degree of management’s evidentiary support by management either obtaining industry information, inquiring of technicians, or doing these two plus reviewing records, and performing field inspections.Results support my prediction; in the higher uncertainty condition auditors were more comfortable and expected a lower adjustment when management obtained more evidential support, but in the lower uncertainty condition auditors were more comfortable and expected a lower adjustment when management obtained less evidential support.Notably I find that alignment between estimate uncertainty and management’s evidentiary support can make auditors more comfortable with management estimates supported by relatively less evidence.These findings demonstrate how audit risk factors, such as the level of uncertainty and degree of management’s support can interact and cause auditors to more readily accept less supported financial statement estimates.More broadly, these findings reveal how providing more information can actually make recipients more uncomfortable with a proposition.
PDF
download
878987797
028-85220240
