（2001）The Disposition of Audit-Detected Misstatements：An Examination of Risk and Reward Factors and Aggregation Effects.pdfVIP

The Disposition of Audit-Detected Misstatements : An Examination of Risk and Reward Factors and Aggregation Effects* KAREN WILKEN BRAUN, University of Georgia Abstract While professional standards indicate that auditors have the responsibility to both detect and repott material errors, empirical evidence shows that auditors waive approximately 50 percent of material erTors (Wright and Wright 1997). Unlike prior research that has examined factors that may affect auditors decisions to waive single material misstatements, the current study examines auditors propensity to waive proposed adjusting journal entries (henceforth PAJEs) that exceed materiality, either individually or in aggregate, under several different aggregation contexts. These contexts are represented in the form of different cases that vary in terms of the materiality and income direction of the individual and aggregate PAJEs. The current paper posits that auditors will be more likely to waive PAJEs in excess of materiality (i.e., make a non-GAAS decision) when there is potential reward for doing so or when there is little litigation risk from doing so. The case decisions of 155 audit partners and managers indicate that they are not affected by potential reward (Clients Relative Fees), but are affected by potential risk (the Clients Financial Health, the PAJEs Subjectivity, and the PAJEs Aggregate Directional Effect on Income). However, these factors are not equally influential across all aggregation contexts . Additionally, auditors are more likely to make non-GAAS decisions when they are evaluating immaterial PAJEs that aggregate to a material level than when they are evaluating a single material PAJE. Keywords Aggregation of errors; Audit adjustments; Independence; Materiality Condense La valeur dune