Auditor liability: A comparison of judge and juror verdicts

• Published in: Journal of accounting and public policy 2012-09, Vol.31 (5), p.516-532
• Main Authors: Arel, Barbara, Jennings, Marianne M, Pany, Kurt, Reckers, Philip MJ
• Format: Article
• Language: English
• Subjects: Auditing; Comparative analysis; Internal auditors; Judgement; Judges; Juries; Liability; Litigation; Professional liability; Public accounting; State court decisions; Studies
• ISSN: 0278-4254; 1873-2070
• DOI: 10.1016/j.jaccpubpol.2011.10.004

This research examines differences between judges and jurors in rendering liability judgments in auditor litigation cases. While any number of case contexts would allow us to contrast and compare judges and jurors, we chose one that we believed would also address a second timely issue, auditor reliance or non-reliance upon the work of others. Within the general context of litigation of an alleged audit failure, we manipulated, between-participants, external auditor reliance on the work of others (relied on outsourced work, relied on in-house internal auditors’ work or did not rely). Our results show differences in the liability assessments of judges and jurors. Judges assign more liability to auditors that rely on the work of in-house internal auditors, less liability to auditors that rely on outsourced internal auditors and the least liability to auditors that choose not to rely on the work of internal auditors (but re-perform the work themselves) while jurors assess higher liability regardless of the work done by the auditors. Mediation analyses suggests the differences found in the overall liability assessments of jurors and judges are partially driven by their divergent attitudes towards the public accounting profession with jurors’ unfavorable attitudes leading to them assign liability regardless of the work performed. Further analysis suggests juror insensitivity to our reliance manipulations may reflect a strict liability perspective (consistent with prior work by Charron and Lowe (2008)); while judges consider other factors when making liability assessments.