The Effects of Specialist Type and Estimate Aggressiveness on Jurors' Judgments of Auditor Negligence

We examine the effects of two critical factors auditors consider when auditing complex estimates, the decision to use a specialist and the relative aggressiveness of management's estimate, on jurors' auditor negligence assessments. Experiment 1 finds jurors view auditors' acceptance of a more aggressive estimate as more justifiable, and are thus less likely to find them negligent, when auditors consult with either internal or external specialists. However, these litigation benefits do not extend to audits of less aggressive estimates. Experiment 2 finds jurors are less likely to find auditors negligent when auditors use an external versus an internal specialist, due to greater perceptions of external specialist independence. We also find auditors accrue similar litigation benefits when an external specialist reviews the internal specialists' work. We conclude that utilizing external specialists, either to directly test complex estimates or to review internal specialists' work, limits auditors' litigation exposure when auditing relatively aggressive estimates.