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The problem of management bias in accounting estimates: An investor perspective on root causes and solutions
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.
2015 (English)In: Business Horizons, ISSN 0007-6813, E-ISSN 1873-6068, Vol. 58, no 5, 501-508 p.Article in journal (Refereed) Published
Abstract [en]

The standards of the PCAOB implicitly, yet unmistakably, presume that auditors are capable of eliminating the material effects of management bias by constraining point estimates to a ’reasonable’ range. Yet, from inspection results of the PCAOB and its global counterparts we can confidently infer that auditors far too often fail to exercise sufficient skepticism of management’s estimates. The consequences could be profound. Therefore, we are proposing fundamental changes to the rules of engagement between the auditor and its client. We would, incrementally over time, transfer the responsibility for financial statement judgments to independent appraisers. Auditing would become solely a verification service, and financial statements would better serve investors and the public interest.

Place, publisher, year, edition, pages
2015. Vol. 58, no 5, 501-508 p.
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Business Administration Environmental Analysis and Construction Information Technology
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URN: urn:nbn:se:kth:diva-174684DOI: 10.1016/j.bushor.2015.05.003ISI: 000361773400004Scopus ID: 2-s2.0-84940720815OAI: oai:DiVA.org:kth-174684DiVA: diva2:871395
Note

QC 20151113

Available from: 2015-11-13 Created: 2015-10-07 Last updated: 2017-12-01Bibliographically approved

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