An empirical examination of the influence of the “new” US audit report and fraud red-flags on perceptions of auditor culpability

Dan C. Kneer, Philip Reckers, Marianne M. Jennings

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

In 1988, the US standard form audit report experienced its first major modification in 39 years. Among the objectives of the “new” report were better auditor/user communications leading to, among other things, an abridgement of auditor liability. Nearly a decade later, this issue has yet to be addressed empirically and with rigour. The empirical research reported examines the ability of the “new” audit report to reduce perceptions of auditor responsibility/liability across two instances of alleged audit failure. It is argued that a jurist’s advantage of “perfect hindsight” may mitigate the effectiveness of revised communications contained in the audit report, in instances where audit risk at the time of the audit appears high. Accordingly, consideration of environments of both high and low perceived risk were provided in a behavioural experiment conducted with 81 investors serving as subjects. Findings reveal that the revised audit report language may provide relief for auditor liability, but the presence of red-flags, or red-flag related environmental conditions, may exacerbate negative perceptions.

Original languageEnglish (US)
Pages (from-to)18-30
Number of pages13
JournalManagerial Auditing Journal
Volume11
Issue number6
DOIs
StatePublished - Aug 1 1996

Fingerprint

Audit reports
Auditors
Fraud
Communication
Auditor liability
Investors
Empirical research
Experiment
Language
Perceived risk
Environmental conditions
Liability
Audit
Audit risk
Audit failure
Responsibility

Keywords

  • Accounting standards
  • Auditing guidelines
  • External audit
  • Liability
  • Reports
  • Shareholders

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Organizational Behavior and Human Resource Management
  • Economics, Econometrics and Finance(all)

Cite this

An empirical examination of the influence of the “new” US audit report and fraud red-flags on perceptions of auditor culpability. / Kneer, Dan C.; Reckers, Philip; Jennings, Marianne M.

In: Managerial Auditing Journal, Vol. 11, No. 6, 01.08.1996, p. 18-30.

Research output: Contribution to journalArticle

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