Insight into the process of responsibility judgment of an audit failure

Purpose: This study tests a research model for promoting understanding of the responsibility attribution process. Design/methodology/approach: A between-subjects experiment was conducted to test the hypotheses. Findings: The results reveal that counterfactual thinking about how a system failure could have been prevented moderates the effect of cause of misstatement on perceived control. Counterfactual thinking about how an audit failure could have been avoided also moderates the effect of perceived control on causal account. Additionally, causal account mediates the effect of perceived control on responsibility judgment of an audit firm. Inclusion of audit firm size and auditor systems competency as control variables in the hypothesis tests and as grouping variables in the invariance tests does not alter the model results. Research limitations/implications: Research can guide the audit profession on development of innovative strategies for detecting fraud to protect the interests of decision-makers. Strategies can also be devised to prompt users to consider relevant factors to enhance their ability to arrive at an accurate assessment of an audit firm’s responsibility for an audit failure. Practical implications: Regulators may need to address whether availability of advanced data analytic tools increases the audit firms’ responsibility for presenting convincing evidence suggesting due diligence in the audit work in the event of an audit failure. Originality/value: This study examines the process variables influencing responsibility judgment of an audit firm. Elicitation of counterfactual thoughts before the participants responded to the questions measuring the process and dependent variables facilitates discernment of the intensity of counterfactual thinking on the variables examined in the research model.