Judgment and decision making in auditing

Judgment and decision making (JDM) research in auditing is undertaken to understand how individual and group judgments and decisions in auditing are made and how to improve those judgments. References to the need for judgments are very common in auditing standards and, in fact, the whole process of auditing is permeated by professional judgment. For example, consider the broad range of judgments and decisions auditors make: plan the amount and type of evidence to collect, determine fraud risk factors, search for and obtain evidence, determine the level of professional skepticism to exercise, review the work of others and make assessments of internal control, materiality, fair value, going concern and the reliance to be placed on the work of internal auditors and other experts. We focus on research that considers auditor judgments and do not consider research on the judgments of other parties that use audit reports, e.g. investor judgments. This is an extremely broad topic covering almost 50 years of published research. In this chapter, we describe the purpose of JDM research in auditing, the types of research that have been carried out, including the historical development and current issues addressed. It then considers some of the unresolved issues that future research can address and research method challenges. Finally, we consider the use of qualitative research combined with experimental methods for theory development, developing research instruments, and explaining key findings.