Auditors & Decision Aids: The Effect of Litigation Risk and Internal Control Risk on Decision Aid Reliance & Decision Confidence

The purpose of the current study is to examine how litigation risk and internal control

risk affect auditors reliance on decision aid recommendations. This is a particularly

relevant question in the Sarbanes-Oxley era, as decision aids hold the potential to

improve audit quality; yet, immense legal and regulatory pressures on audit firms to

improve audit quality could lead to a check list mentality where auditors subordinate

their audit judgments to decision aid recommendations. Based on an experiment

involving 118 audit practitioners, we find that auditors rely more on decision aid

recommendations when either litigation risk or internal control risk is high relative to

low. When litigation risk and internal control risk are simultaneously high, there is an

interactive effect on decision aid reliance. The experimental design incorporates an

unrealistic recommendation from the decision aid and, disturbingly, when both risks are

high, the auditors appear to deferentially follow the decision aids advice. The main and

interaction effect patterns for decision confidence are directionally opposite from

decision aid reliancean unexpected finding. Analyses of cognitive response items

suggest that, despite low confidence in their final decisions, participants who display

relatively high reliance believe that using and relying on the aid would help them defend

their judgments in a court of law. Post-experimental analyses reveal that fairly low

reliance on decision aids in practice is mainly due to uncertainty surrounding the

accuracy of decision aids and lack of refresher training on decision aid use.