Budgeting Audit Time: Effects of Procedure Frame and Perceived Procedure Verifiability

Auditors must ensure that their audit plans budget sufficient time to key audit procedures. Research has shown that insufficient audit time budgets can be detrimental to audit quality. We examine whether framing audit procedures negatively (e.g., assess whether management’s assumptions are not appropriate) increases time budgets, particularly for procedures for which the auditor perceives that performance quality is less verifiable and thus most at risk of being performed with low quality. We report the results of an experiment in which 50 experienced audit managers budget time for an audit program to test a Level-3 fair value estimate, which prior research and PCAOB inspections indicate is a challenging audit area vulnerable to allegations of low audit quality. The results support our predictions. We also find that auditors are not aware of the extent to which framing affects their planning decisions. These results suggest that re-framing audit procedures negatively would increase audit time budgets, particularly for less-verifiable procedures.