Disclosures, Loss contingency, Stock price response, Earnings quality

William R. Kinney, Jr., Gerald L. Salamon, Regression Analysis in Auditing: A Comparison of Alternative Investigation Rules, Journal of Accounting Research, Vol. 20, No. 2, Part I (Autumn, 1982), pp. 350-366

This study reports the results of an experiment in which audit seniors made judgments in analytical review and compliance testing settings. In both settings, results consistent with the hypothesized use of the anchoring and adjustment heuristic were observed. With respect to analytical review, the study alerts auditors to the potential importance of forming expectations concerning a client's audited values without considering the recorded (book) values. With respect to compliance testing, a judgment procedure that mitigates the potentially dangerous consequences of anchoring when judgmental Inferences from sample information must be made is presented. Results of the compliance study were used by the Sampling Standards Task Force of the AICPA in developing Statement on Auditing Standards No. 39, entitled, "Audit Sampling."

This paper reviews auditing research on the process by which auditors form their opinions on financial statements. A structure for this research is provided to organize the review and to provide insights into areas where research is needed. This structure is obtained by cross-classifying steps in theory development and steps in the opinion formulating process. While several important lines of research have begun, the primary conclusion is that a great deal of potentially important research has not been performed.