دانلود رایگان مقاله انگلیسی خطر ارزیابی و محافظه کاری حسابرس - اشپرینگر 2017

Abstract

Estimation risk occurs when individuals form beliefs about parameters that are unknown. We examine how auditors respond to the estimation risk that arises when they form beliefs about the likelihood of client bankruptcy. We argue that auditors are likely to become more conservative when facing higher estimation risk because they are risk-averse. We find that estimation risk is of first-order importance in explaining auditor behavior. In particular, auditors are more likely to issue going-concern opinions, are more likely to resign, and charge higher audit fees when the standard errors surrounding the point estimates of bankruptcy are larger. To our knowledge, this is the first study to quantify estimation risk using the variance-covariance matrix of coefficient estimates taken from a statistical prediction model.

6 Conclusions

Estimation risk imposes incremental uncertainty on risk-averse individuals and therefore affects their behavior. We examine how estimation risk affects auditors’ going-concern reports, their resignation decisions, and audit fees. We demonstrate that auditors are more likely to issue going-concern opinions when the point estimates of bankruptcy are estimated with greater imprecision. Additionally, auditors have a greater propensity to resign when the point estimates of bankruptcy have bigger standard errors. Finally, we show that auditors charge higher fees when faced with higher estimation risk surrouding the point estimates of bankruptcy.

These findings are consistent with estimation risk helping explain auditor behavior. In particular, our findings suggest that auditors are more conservative when they face greater estimation risk. These findings matter because decision-making under uncertainty is a key theme of accounting research. We have demonstrated that it is simple to compute estimation risk using the variance-covariance matrix of coefficient estimates and to then examine how this risk affects the behavior of risk-averse individuals. This study’s methodology for measuring estimation risk can be used in other accounting settings, where the decisions of risk-averse individuals are likely to be affected by estimation risk.