Evaluating the Relationship Between Audit Documentation and Legal Defensibility in Financial Reporting
Posted: Feb 29, 2020
Abstract
This research investigates the critical relationship between audit documentation quality and legal defensibility in financial reporting disputes, proposing a novel quantitative framework for assessing documentation robustness. While traditional auditing literature emphasizes compliance with professional standards, this study introduces a multidimensional approach that integrates legal defensibility metrics with documentation characteristics. We developed and validated the Audit Documentation Defensibility Index (ADDI), a comprehensive scoring system that evaluates documentation across six dimensions: completeness, clarity, timeliness, consistency, evidential strength, and professional judgment transparency. Through analysis of 150 simulated audit cases and expert validation with 35 practicing auditors and legal professionals, we demonstrate that documentation scoring in the highest ADDI quartile correlates with 87
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