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Litigation Risk And Audit Fees
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Book Synopsis Litigation Risk and Audit Fees by : Paul J. Beck
Download or read book Litigation Risk and Audit Fees written by Paul J. Beck and published by . This book was released on 2013 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using D&O insurance premia from the 2001-2004 Tillinghast D&O insurance surveys as a proxy for litigation risk, we show that audit fees are positively associated with litigation risk even after controlling for several quantitative risk factors known to influence both the insurance premium and audit fee. We attribute this positive association to the parallel development of risk assessment expertise by both D&O insurers and auditors and to their overlapping sources of qualitative risk information. The significant association between D&O premia and audit fees also provides external validation for the auditor's risk assessment process. Finally, we partition accounting firms based on their audit methodologies and find that the audit fees charged by risk-based auditors are more strongly associated with litigation risk than those charged by firms using more traditional audit approaches.
Book Synopsis Litigation Risk and Audit Fees by : Ananth Seetharaman
Download or read book Litigation Risk and Audit Fees written by Ananth Seetharaman and published by . This book was released on 2001 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study re-examines the relationship between litigation risk and audit pricing. Two necessary ingredients to empirically examine this relationship are (a) a litigious legal environment, and (b) publicly disclosed auditor remuneration. Prior studies have not been able to comprehensively examine this relationship because the most litigious country in the world, the U.S., does not require auditor remuneration to be publicly disclosed. Conversely, countries that require companies to disclose auditor remuneration in their financial statements (e.g., Hong Kong, Australia, and the UK) typically have a relatively benign litigation environment. In this study, we straddle publicly disclosed auditor remuneration and a highly litigious environment by focusing on UK firms cross-listed on U.S. stock exchanges. We find that, after controlling for other factors, UK firms tend to charge higher fees for their services when their clients are cross-listed on major U.S. stock exchanges. We, however, find no evidence of higher audit fees when UK firms cross-list on non-U.S. foreign exchanges. These findings are consistent with the prediction that audit fees will reflect risk differences across liability regimes.
Book Synopsis Issues in Examining the Effect of Auditor Litigation on Audit Fees by : Miguel Minutti-Meza
Download or read book Issues in Examining the Effect of Auditor Litigation on Audit Fees written by Miguel Minutti-Meza and published by . This book was released on 2014 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: A large body of research has studied audit fees aiming to determine whether they reflect auditors' response to clients' risks, auditors' expertise, competitive pressures in the audit market, and independence issues between auditors and clients. Badertscher, Jorgensen, Katz, and Kinney [2014] study the effect of auditor litigation risk on audit fees. Litigation risk is expected to be a strong incentive for auditors to deliver high quality audits and an important determinant of audit fees. Nevertheless, determining the impact of litigation risk is complicated because although there is considerable variation in audit fees, there are scarce opportunities to examine variation in litigation risk. This paper provides a brief summary of extant studies examining the effect of auditor litigation on audit fees, and discusses research design issues and future research opportunities in this area.
Book Synopsis The Association Between Firm Litigation Risk and Audit Fees by : Joginderpal Singh Kundi
Download or read book The Association Between Firm Litigation Risk and Audit Fees written by Joginderpal Singh Kundi and published by . This book was released on 2005 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Auditor Litigation Risk and the Number of Institutional Investors by : Cory A. Cassell
Download or read book Auditor Litigation Risk and the Number of Institutional Investors written by Cory A. Cassell and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether auditors are sensitive to litigation risk related specifically to having greater numbers of institutional investors that hold the common stock of a given client. Our findings suggest that audit fees are higher when the number of institutional investors holding stock in the company is greater. Additional tests corroborate our inference that the association between audit fees and the number of institutional investors is related to litigation risk. The importance of improving our understanding of auditors' sensitivity to factors that increase litigation exposure is highlighted by the number and magnitude of lawsuits filed against auditors relating to the audits of public clients.
Book Synopsis The Importance of Business Risk in Setting Audit Fees by : Michael W. Maher
Download or read book The Importance of Business Risk in Setting Audit Fees written by Michael W. Maher and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous research provides evidence that, for the clients of a large audit firm, audit clients with higher perceived business risk bear the expected costs of this risk with higher audit fees. We extend the literature, which focuses on the relation between litigation risk and audit fees, by examining alleged client misconduct that is not illegal but possibly increases business risk. In particular, we examine the relation between audit fees and business risk for audit clients doing business in developing countries where bribery of top government officials has been accepted business practice. We hypothesize that bribery-paying clients are riskier both because of client business risk and audit business risk. Using data collected from SEC filings and audit fee data in the 1970s, prior to the passage of the Foreign Corrupt Practices Act, we provide evidence that audit fees were higher for clients that disclosed paying bribes. This evidence is consistent with an audit market where auditors assess business risk at the client level, then pass its expected costs to the client in the form of higher audit fees.
Book Synopsis Litigation Risk and Auditor Resignations by : Jayanthi Krishnan
Download or read book Litigation Risk and Auditor Resignations written by Jayanthi Krishnan and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Litigation against auditors has increased dramatically in recent years. Auditors can offset litigation risk in a number of ways, including improved audit quality and planning, increases in audit fees and increases in the issuance of modified opinions. Auditors can also adjust their client portfolios by becoming more selective in their choice of new clients and by withdrawing from high-risk engagements. We test the hypothesis that litigation risk motivates auditor resignations by comparing resignation companies with two groups of client companies that dismissed their auditors: one matched with the resignation companies on industry and year, and the other matched on year alone. We find resignation companies differ from dismissal companies along dimensions that capture the probability of litigation: financial distress, variance of abnormal returns, auditor independence, tenure and a modified (particularly going-concern) opinion. We also construct a litigation proxy based on a prior litigation-prediction model and find that the proxy is positively associated with the probability that the auditor will resign rather than be dismissed from the engagement. Our analysis is consistent with concerns expressed by the accounting profession that litigation pressures lead to the withdrawal of audit services for a segment of the market.
Book Synopsis Financial Statement Conformance to Benford's Law and Audit Fees by : Huan Yin
Download or read book Financial Statement Conformance to Benford's Law and Audit Fees written by Huan Yin and published by . This book was released on 2016 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditors assure the fairness of financial statements for company stakeholders. Audit effort to minimise errors leads to higher audit fees. The reduced audit fees in the United States cause company stakeholders' concern on audit quality. A reliable method used in other fields, Benford's Law, may assist auditors to identify errors from data manipulation and accounting irregularities. This research investigates whether using Benford's Law can reduce audit risk and improve audit outcomes, using a sample of U.S. companies between 2000 and 2014. I empirically examine whether the FSD_Score based on the Kolmogorov-Smirnoff statistic (maximum deviation between empirical digit distribution and Benford's Law distribution) and the mean absolute deviation is an important determinant of audit fees. Validation tests are conducted to test the conformity with Benford's Law in my samples. Audit fee models are used to investigate the association between FSD_Score and audit fees. Evidence from validation tests indicates that numbers in financial statements closely conform to Benford's Law. I find a negative and significant association between FSD_Score and audit fees, inconsistent with the hypothesis that audit fees increase with FSD_Score because high FSD_Scores reflect high litigation risks. I also find that the association between FSD_Score is stronger in smaller firms than in larger firms. Results from audit fee models and additional tests suggest that FSD_Score can be used as a measure of audit quality instead of litigation risk.
Book Synopsis The Impact of Litigation Risk on Audit Pricing by : Dan A. Simunic
Download or read book The Impact of Litigation Risk on Audit Pricing written by Dan A. Simunic and published by . This book was released on 1995 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Audit Fees, PCAOB Sanctions, Sanction Risk, Sanction Risk Premiums, and Public Policy by : Wm. Dennis Huber
Download or read book Audit Fees, PCAOB Sanctions, Sanction Risk, Sanction Risk Premiums, and Public Policy written by Wm. Dennis Huber and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sarbanes-Oxley Act of 2002 (SOX) was enacted to “protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws...” The Public Company Accounting Oversight Board (PCAOB) was created as part of SOX and given a duty to impose monetary sanctions on PCAOB registered accounting firms for intentional, knowing, or reckless conduct that results in violation of the statutory, regulatory, or professional standards of auditing, or for repeated instances of negligent conduct. This creates a new risk for both individual auditors and auditing firms separate and distinct from business, audit, and litigation risk -- sanction risk. This paper establishes the legal and economic bases of sanction risk and proposes that research be conducted to determine whether sanction-risk premiums are being incorporated into audit fees and passed on to clients by registered accounting firms thereby subverting the intended purpose of the sanctions.
Book Synopsis The Effects of Auditor Dismissals and Resignations on Audit Fees by : Paul A. Griffin
Download or read book The Effects of Auditor Dismissals and Resignations on Audit Fees written by Paul A. Griffin and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the effects of auditor dismissals and resignations on audit fees and, in particular, whether companies pay more or less for their audits around these events. We also test the hypotheses that the fee discount around a dismissal can be explained by the benefits of auditor incumbency and the fee premium around a resignation varies in relation to the additional audit effort and litigation risk of the incoming auditor. We base our study on a comprehensive sample of audit fee disclosures made by SEC registrants during fiscal years 2000 to 2004, so that our study period includes auditor changes before and after the Sarbanes-Oxley (SOX) legislation. For dismissals, we find that not only does the successor auditor discount fees, and in a way that supports our discounting hypothesis, but also that fees are discounted one year before the auditor change by the incumbent auditor, consistent with the view that the threat of a dismissal may influence fees. For resignations, fees are higher one year before and after the event indicating that both the incumbent and incoming auditor charge a premium around a resignation, possibly because the new auditor needs to cope with greater than normal litigation risk and/or audit effort. SOX appears not to have affected discounting around a dismissal, but the fee premium around a resignation increases following the legislation, consistent with our resignation hypothesis. We also find that non-audit fees are discounted around a dismissal, and this result too appears to be unchanged by SOX.
Author :Suil Pae Publisher :National Library of Canada = Bibliothèque nationale du Canada ISBN 13 : Total Pages :154 pages Book Rating :4.F/5 ( download)
Book Synopsis Firm Value, Audit Quality, and Social Welfare in the Presence of Costly Litigation Against Auditors by : Suil Pae
Download or read book Firm Value, Audit Quality, and Social Welfare in the Presence of Costly Litigation Against Auditors written by Suil Pae and published by National Library of Canada = Bibliothèque nationale du Canada. This book was released on 1996 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Directors' and Officers' Legal Liability Insurance, Audit Pricing, and Litigation Risk by : Hyeesoo Hyun Chung
Download or read book Directors' and Officers' Legal Liability Insurance, Audit Pricing, and Litigation Risk written by Hyeesoo Hyun Chung and published by . This book was released on 2015 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Directors' and officers' (D&O) legal liability insurance is commonly provided to corporate executives and directors. Prior literature suggests managers are more willing to engage in opportunistic behaviors when their personal assets are more protected from litigation risk. Therefore, information about D&O policy details is potentially useful in assessing potential managerial opportunism. However, many countries, including the U.S., do not require firms to disclose this information. We provide evidence on whether mandatory D&O disclosures are likely to provide information about managerial opportunism that is incremental to that provided by other sources of information using a sample of Canadian firms, who are required to make D&O disclosures. We examine the association between excess D&O coverage limits and audit fees since auditors have extensive private information about the likelihood of managerial opportunism and strong incentives to incorporate this information into their audit fees. We find a positive association between excess D&O coverage limits and audit fees after controlling for numerous other audit fee determinants, including other proxies for managerial opportunism such as discretionary accruals and corporate governance variables. Additional analyses suggest auditors are more sensitive to potential managerial opportunism when managers are more likely to act on their opportunistic incentives. We also find a positive association between excess D&O coverage limits and the likelihood of future shareholder litigation. Our findings suggest that D&O insurance disclosures convey incremental information to shareholders and other capital market participants. As such, they suggest a beneficial role for mandatory D&O disclosures.
Book Synopsis Auditors' Litigation Risk by : Kevin M. Raedy
Download or read book Auditors' Litigation Risk written by Kevin M. Raedy and published by . This book was released on 1998 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Public Equity and Audit Pricing in the United States by : Brad A. Badertscher
Download or read book Public Equity and Audit Pricing in the United States written by Brad A. Badertscher and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross-section, we find that audit fees for public equity firms are 20-22% higher than fees for otherwise similar private equity firms. Time-series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.
Book Synopsis The Transformation of Auditors' Organizational Form, Legal Environment, and Audit Fees by : 陳萌
Download or read book The Transformation of Auditors' Organizational Form, Legal Environment, and Audit Fees written by 陳萌 and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the association between the transformation of CPA firms' organizational form and audit fees and how legal environment affects this relationship. Exploiting a unique setting in which the legal form of Chinese public accounting firms is mandated to change from limited liability (LL) to limited liability partnerships (LLP), I find that the change in the legal form is associated with a significant increase in audit fees, and that such increase is more pronounced in provinces with stricter legal environment. These findings suggest that auditors respond to the increased litigation risk by charging a higher audit fees..
Book Synopsis Interpretive Guidance and Financial Reporting Costs by : Dain C. Donelson
Download or read book Interpretive Guidance and Financial Reporting Costs written by Dain C. Donelson and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effect of interpretive accounting guidance on a direct and observable cost of financial reporting: audit fees. Many contend that U.S. GAAP has too much interpretive guidance, making it complex and difficult to assimilate. This effect would lead to higher audit effort and higher fees. However, specific guidance could both lower litigation risk and increase audit efficiency by reducing the need for auditors to continually deliberate complicated accounting issues across engagements. These effects would lead to lower audit fees. Overall, using both levels and changes regressions, we find that interpretive accounting guidance is associated with higher audit fees. However, this effect is smallest for firms facing the highest ex-ante litigation risk. Finally, we examine whether increased audit fees persist and find that the audit fee effect disappears by the third year after the interpretive guidance becomes effective. Overall, we find no evidence that interpretive guidance decreases audit costs.
