Audit Sampling Methods And Juror Negligence Awards: An Expectation Gap?

Abstract

Generally accepted auditing standards permit auditors to apply both statistical and nonstatistical sampling techniques in obtaining sufficient, competent evidential matter.  However, several recent studies have shown that statistical sampling procedures have nearly disappeared from practice. Despite this trend and the heightened anxiety about professional liability, no studies to date have directly tested the potential implications of sampling method on jurors verdicts, damage awards, or sample size expectations.  In this study we investigate the effect of sampling method on jurors’ judgments in auditor negligence trials.  Overall, in a case where auditors were alleged to have used an insufficient sample size, the sampling method did not affect the likelihood of a “guilty of negligence” verdict.  However, as predicted, damage awards were significantly higher when nonstatistical sampling was used compared with statistical sampling.  Exploratory analysis revealed that subjects voting “guilty of negligence” would require the auditors to examine over 17% of the population (compared with the 1% examined) in order to change their verdict to “not guilty of negligence.”  These findings have troubling implications for auditors employing sampling techniques.