Why are auditors blamed when something goes wrong? Experimental evidence

• Published date: 01 November 2018
• Date: 01 November 2018
• Author: Florian Hoos,Cedric Lesage,Emna Ben Saad
• DOI: http://doi.org/10.1111/ijau.12126

ORIGINAL ARTICLE

Why are auditors blamed when something goes wrong?

Experimental evidence

Florian Hoos

1

|Emna Ben Saad

2

|Cedric Lesage

3

1

HEC Paris, Jouy‐en‐Josas, France

2

IHEC, Carthage, University of Carthage,

Tunis, Tunisia

3

John Molson School of Business, Concordia

University, Montréal, Canada

Correspondence

Professor Florian Hoos, Department of

Accounting and Management Control, HEC

Paris, 1 Rue de la liberation, F‐78351 Jouy‐en‐

Josas, France

Email: hoos@hec.fr

Funding information

Lawrence Bloomberg Chair in Accountancy

and HEC Foundation (project F1208)

Audit firms claim that they are used as the whipping boy when something goes wrong,

either because of the public's poor knowledge of the auditing function or because

financial incentives exist to blame the audit firm. An alternative explanation is that

audit firms' active communication of their assurance provider role causes blaming

behavior. We investigate these different explanations based on a 2 × 2 between‐sub-

jects experiment in which we manipulate financial incentives to blame the audit firm

and the audit firm's communication strategy. Three weeks in advance of the experi-

ment we administered an auditing knowledge questionnaire to the participants to

include their auditing knowledge levels into our study. We find that audit firms with

“deep pockets”and an active assurance provider communication strategy receive sig-

nificantly higher blame, and that poor knowledge of auditing is associated with higher

blame. Furthermore, when a firm uses an assurance provider communication strategy,

then it receives higher blame from participants with high (relative to low) auditing

knowledge.

KEYWORDS

audit expectation gap,audit failure, audit judgment, Fraud

1|INTRODUCTION

Following the financial crisis and the series of accounting scandals, the

role of the auditor as assurance provider to the market and the wider

public has again attracted attention by regulators (European Commis-

sion [EC], 2013) and the profession itself (Buddery, Franck, &

Martinoff, 2014). Auditors were blamed in the media and the wider

public,

1

while the auditing profession regularly claims that auditors

are used as the whipping boy when something goes wrong (Guénin‐

Paracini & Gendron, 2010). As a former vice president of the American

Institute of Certified Public Accountants puts it: “As long as investors

suffer losses from a sudden and drastic drop in earnings or the bank-

ruptcy of a corporation which was widely regarded as a good invest-

ment, our profession is going to be criticized in the news media”

(Humphrey, Moizer, & Turley, 1992, p. 138). The auditing profession

tends to downplay its role in the blame game as credence to such a

role would damage their reputation and increase their litigation risk

(Kaplan, 1987; Reckers, Jennings, Lowe, & Pany, 2007; Zhang, 2007).

Two main explanations for blaming behavior have been put forth by

the auditing profession and academic research: the public's poor

knowledge of the auditing function (i.e., people blame an audit firm

because they do not understand what auditing is about) (Humphrey

et al., 1992) and the “deep‐pocket”incentive (i.e., people blame an

audit firm because they assume that it can afford to pay the damages)

(Dye, 1993).

In this paper, we analyze an additional explanation for blaming

behavior toward the auditor, and to what extent it interacts with the

other explanations. We argue that an audit firm can trigger blaming

behavior through its communication of the audit firm's assurance pro-

vider role. Thereby, we place the focus on an audit firm's active role in

the blame game through its assurance provider message inherent in

the firm's communication strategy, instead of treating the audit firm

only as a victim of blaming behavior. As noticed by Skærbæk and

Christensen (2015, p. 1263), “while the audit literature has a strong

body of work considering civil action (that is, blame) against company

auditors it falls silent on the way in which audit becomes an instru-

ment of blame.”These authors describe the processes through which

auditors and audit devices become participants (and not victims) of the

Received: 18 March 2016 Revised: 5 January 2018 Accepted: 6 May 2018

DOI: 10.1111/ijau.12126

422 © 2018 John Wiley & Sons Ltd Int J Audit. 2018;22:422–434.wileyonlinelibrary.com/journal/ijau