Auditor Judgment and Decision-Making in Financial Audits
Summary
Auditor judgment and decision-making lie at the heart of the external audit function, combining technical accounting knowledge with cognitive processes to assess the fairness of financial statements. Practitioners must apply professional scepticism when gathering and evaluating evidence, weighing qualitative and quantitative factors to form an opinion on material misstatements. Decision makers draw on standard frameworks—such as risk assessment models and materiality thresholds—while contending with time pressures, information asymmetries and potential conflicts of interest. Recent advances in behavioural audit research have shed light on how heuristic shortcuts, group dynamics and organisational incentives shape individual judgements, highlighting conditions under which biases may arise. Technological innovations, including data analytics and remote auditing tools, are also transforming the evidence-gathering process, presenting new opportunities for enhanced rigour alongside challenges for maintaining sceptical scrutiny. Taken together, this body of work underscores the need for continuous refinement of audit methodologies and firm-wide quality controls to ensure that professional judgement remains both robust and transparent in a rapidly evolving financial landscape.
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Auditor Judgment and Decision-Making in Financial Audits publication trend
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Technical terms
Professional scepticism: An attitude characterised by questioning mind-set, critical assessment of audit evidence and vigilance for conditions indicating possible misstatement.
Materiality: The magnitude of an omission or misstatement that, in light of surrounding circumstances, could influence the economic decisions of users of financial statements.
Discretionary accruals: Management’s accounting estimates subject to auditor evaluation, often used as a proxy for potential earnings management.
Wise-thinking dispositions: Individual tendencies to engage in balanced, reflective consideration of evidence and alternative perspectives when forming judgements.
References
- Auditors’ Use of In‐House Specialists. Journal of Accounting Research (2023).
- Audit evidence, technology, and judgement: A review of the literature in response to ED‐500. Journal of International Financial Management and Accounting (2023).
- Do Stronger Wise‐Thinking Dispositions Facilitate Auditors' Objective Evaluation of Evidence When Assessing and Addressing Fraud Risk?*. Contemporary Accounting Research (2021).
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