Auditors' evaluation of subsequent events: the effects of prior commitment and type of accountability

Soon-Yeow Phang, Neil L Fargher

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)


A judgment problem associated with auditing subsequent events is that auditors fail to adequately respond to subsequent events identified late in the audit. One possible source of this failure to respond could be that subsequent events are typically discovered near the end of the audit when the auditor has established an initial view regarding the fair presentation of the financial statements. Our first experiment examines the issue of whether auditors' prior commitment to management on the fair presentation of the financial statements influences their evaluation of subsequent events across levels of control environment risk. We find that auditors propose smaller audit adjustments to subsequent events following prior commitment when the control environment risk is low, relative to when there is no prior commitment. Our second experiment examines whether a requirement for process accountability can mitigate the effect of prior commitment on auditor judgment. We find that process accountability (a requirement to justify the processes leading to a decision), rather than outcome accountability (the need to justify a final decision), can effectively mitigate auditors' biases arising from prior commitment. Our findings should be informative to standard setters proposing documentation of judgment processes, and audit practitioners interested in improving their judgment frameworks.
Original languageEnglish
Pages (from-to)167-182
Number of pages16
JournalAuditing: A Journal of Practice & Theory
Issue number3
Publication statusPublished - Aug 2019


  • Accountability
  • Auditor judgment
  • Prior commitment
  • Subsequent events

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