The study involved asking nearly 50 senior auditors from top accounting firms to assess the cost of an explosion at a hypothetical client’s facility based on memos from the client’s chief financial officer.
The fewer the cost estimates that were given to the auditors, the more likely they were to approve the client’s ballpark figure.
The Public Company Accounting Oversight Board is currently considering new standards on estimates.
“Current standards suggest that a review of management assumptions is important,” Newton said. “But auditors would benefit from coming up with their own estimates.”