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An International Meeting of American Accounting
Association
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Non-Audit Services, Consequence Severity, and Jurors’ Judgments on Audit Failure |
John M. Thornton
Washington State University
Michael K. Shaub
Saint Mary's University
Abstract: This study investigates the Public Company Accounting Oversight Board’s (PCAOB 2005) new rules to limit the scope of tax services public accounting firms provide to their audit clients. We construct a court trial experiment to examine jurors’ assessment of auditor responsibility for plaintiff losses, manipulating three levels of tax services (none, tax services allowed by the PCAOB, and tax services banned by the PCAOB) and two levels of consequence severity (moderate, severe) posited to affect jurors’ judgments and resulting damage awards against auditors. Our results indicate that the audit firm’s provision of certain tax services is associated with lower assessed audit quality, and that lower assessments of audit quality and standards of care increase jurors’ judgments against the auditor, including a significant increase in damage awards. The ex post severity of the outcome of the audit failure had no effect on jurors’ assessments of audit quality or standards of care.