Tax services, consequence severity, and jurors' assessment of auditor liability
Abstract
Purpose
The purpose of this research is to determine whether the type of tax services provided by a public accounting firm to its audit client and the consequence severity of an audit failure impact jurors' assessment of audit quality and auditor liability.
Design/methodology/approach
The authors administer a court case to 168 jurors manipulating three levels of tax services provided to an audit client (none, tax preparation, and aggressive tax planning services); two levels of consequence severity of the alleged audit failure, observing the impact on jurors' assessment of audit quality, auditor responsibility for audit failure; and damages awarded the plaintiff.
Findings
Consistent with recent US regulations, jurors perceive the quality of the audit to be lower when auditors provide aggressive tax planning services, but not for tax preparation services. Damages are greater when auditors provide aggressive tax planning services across both levels of consequence severity.
Research limitations/implications
The results indicate that the type of tax services provided may impact jurors' views of audit quality and damage assessments against auditors. The questionnaire uses previously validated measures, but the results may not be generalizable to jurors in all jurisdictions.
Practical implications
Though empirical evidence is mixed at best about the impact of auditors providing non-audit services on auditor independence in fact, auditor independence in appearance, and thus audit quality, such impacts may affect the way jurors perceive the situation.
Originality/value
The study directly tests the implications for auditor liability of new restrictions on tax services and more accurately measures the impact of consequence severity, using actual jurors.
Keywords
Acknowledgements
The authors would like to thank Jordan Lowe for his significant help in the early part of this project, particularly in the instrument design. The authors are also indebted to the participating jurors and to Paula Perkins, the attorney who assisted with access to the court. The authors thank Graeme Harrison, Nonna Martinov-Bennie, Alan Kilgore, Philip Sinnadurai, and workshop participants at Macquarie University, Washington State University, and Georgia Southern University for their helpful comments. The authors also recognize the research support of the Washington State University College of Business, Texas A&M University's Mays Business School, and St Mary's University's Bill Greehey School of Business.
Citation
M. Thornton, J. and K. Shaub, M. (2014), "Tax services, consequence severity, and jurors' assessment of auditor liability", Managerial Auditing Journal, Vol. 29 No. 1, pp. 50-75. https://doi.org/10.1108/MAJ-03-2013-0834
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited