A longitudinal investigation of auditor error projection decisions

We investigate auditor error projection decisions based on a sample of audit sampling applications collected from the inventory and accounts receivable work-papers from three large firms for audits during 1994 and 1999. We find an overall decline in the rate of error projection, consistent with the argument that audit quality declined during the period. Error projection rates declined for both Big 5 firms in the sample, but increased for the non-Big 5 regional firm. The results also suggest significant individual firm changes in the treatment of nonprojected errors. The use of immateriality as a justification to not project errors increased significantly for one of the firms in our sample and decreased significantly for another firm. The use of containment procedures to resolve large audit differences increased significantly for one firm in our sample. Individual firm differences in error projection and use of immateriality and containment procedures appear to be sensitive to the review process and individual audit firm characteristics. These results indicate that certain audit judgments differ among firms and within firms across time.