This article summarizes the published study ‘‘The Effects of Accounting Standard Precision, Auditor Task Expertise, and Judgment Frameworks on Audit Firm Litigation Exposure” (Grenier, Pomeroy, and Stern 2015) where the authors examine ways that auditors can defend their judgment during litigation regarding the appropriateness of client’s application of imprecise accounting standards. The authors find that utilizing technical experts will reduce litigation exposure arising from imprecise accounting standards because it is difficult to challenge judgments made by a recognized expert. However, the study also finds that using a framework for making high quality professional judgments represents a cost-effective alternative to technical expertise as doing so also constrains jurors’ ability to challenge auditors’ judgments. In sum, the study suggests that auditors are well-equipped to handle the increased litigation exposure associated with imprecise accounting standards, and the ongoing worldwide transition to such standards is unlikely to lead to auditor herding to industry norms.

This content is only available as a PDF.