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Author: Sean Cao
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
Litigation poses a significant business risk for auditors. We argue that auditors learn from other auditors' litigation events and examine the consequences of such events for future accounting misstatements. Using a hand-collected sample of auditor litigation events, we find a significant subsequent decrease in misstatement frequency in within-industry audits conducted by auditors who did not face litigation. This industry-based across-auditor effect is further supported (a) by an increase in audit fees; (b) an increase in auditor going concern opinions; and (c) is robust to a battery of controls including the use of a difference-in-difference approach. By showing that auditor litigation leads to lower, rather than higher, misstatements across an industry, the findings expand our understanding of misstatement contagion evidenced in other studies. We find no evidence of region-based across-auditor learning. Overall, this study, by demonstrating a deterrence effect of litigation for non-sued entities significantly enhances the impact of litigation beyond just the sued entity.
Author: Sean Cao
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
Litigation poses a significant business risk for auditors. We argue that auditors learn from other auditors' litigation events and examine the consequences of such events for future accounting misstatements. Using a hand-collected sample of auditor litigation events, we find a significant subsequent decrease in misstatement frequency in within-industry audits conducted by auditors who did not face litigation. This industry-based across-auditor effect is further supported (a) by an increase in audit fees; (b) an increase in auditor going concern opinions; and (c) is robust to a battery of controls including the use of a difference-in-difference approach. By showing that auditor litigation leads to lower, rather than higher, misstatements across an industry, the findings expand our understanding of misstatement contagion evidenced in other studies. We find no evidence of region-based across-auditor learning. Overall, this study, by demonstrating a deterrence effect of litigation for non-sued entities significantly enhances the impact of litigation beyond just the sued entity.
Author: Colleen Honigsberg
Publisher:
ISBN:
Category :
Languages : en
Pages : 61
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Book Description
We provide a comprehensive overview of shareholder litigation against auditors since the passage of the Private Securities Litigation Reform Act (PSLRA). The number of lawsuits per year has declined, dismissals have increased, and settlements in recent years have declined. Our study asks why. Because we find that the likelihood an auditor is sued following a severe restatement has significantly declined in recent years, it does not appear that the decline can be attributed solely to increases in audit quality. Instead, we consider whether the recent wave of Supreme Court cases limiting the scope of Rule 10b-5 against private actors may have led to the decline. To study this possibility, we focus on the Supreme Court’s 2007 and 2011 rulings in Tellabs v. Makor and Janus v. First Derivative, respectively. These decisions affected Rule 10b-5 litigation in different ways; Tellabs related to pleading standards, while Janus related to liability rules. Our analysis provides strong evidence that the higher liability standards imposed by Janus significantly reduced auditors’ liability exposure, but we find only limited evidence that the pleading standard imposed by Tellabs had a significant effect.
Author: Lakshmana Krishna Moorthy
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
This paper aims to understand the determinants of lawsuits against auditors in securities class action litigation and the settlement pattern by auditors when the suit is not dismissed. The issues we consider are: (i) when are auditors named as defendants (ii) when do auditors choose to settle and (iii) what proportion of the settlement do auditors pay in relation to the settlement by all the other parties; and (iv) differences in settlement strategies among the big-n firms. We also want to understand how these suit and settlement patterns have changed following the enactment of major regulation such as the Private Securities Litigation Reform Act (PSLRA), Sarbanes Oxley Act (SOX). Following prior literature, we first establish that auditors are more likely both to be named and to settle in cases involving restatement of earnings, accusations of violation of GAAP or accounting improprieties. We then show that the likelihood of suit and settlement increase in a measure that we construct measuring the complexity of litigation. We then examine differences in settlement patterns across periods preceding and after the passage of PSLRA and SOX. We find that auditors are named less often in the post PSLRA period (relative to the pre-PSLRA period), settle with the same frequency in both periods but pay less proportional damages. The same set of comparisons show that auditors are just as likely to be sued post-SOX as pre-SOX, but settle with lower frequency and pay the same proportion of damages. Overall this study documents the beneficial role of both PSLRA and SOX on reducing the litigation burden on auditors. With regard to settlement strategies, we document the varying strategies employed by the Big-n firms that settle at different rates, vary in their aggressiveness and time to settle signaling the willingness to fight or cooperate in the settlement.
Author: Louis Morris Brown
Publisher: West Group Publishing
ISBN:
Category : Auditing
Languages : en
Pages : 672
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Book Description
Author: F. Lessambo
Publisher: Springer
ISBN: 1137360011
Category : Business & Economics
Languages : en
Pages : 476
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Book Description
This book provides a comprehensive approach to Corporate Governance, Audit Process and Risk Management. Furthermore, it provides an analytical and comprehensive approach of the issues facing governance directors, internal and external auditors, risk managers, and public officials conducting assessments based upon the Report on Standards and Codes.
Author: Sebahattin Demirkan
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
This study extends the Palmrose and Scholz (2004) general litigation and general restatements study by focusing on auditor litigation and revenue restatements. We investigate all potential accounting issues, individually, instead of by their group method, with regard to auditor litigation. The impact of the individual accounting issues implicated in restatements is of concern to auditors and audit standard setters in gauging auditor litigation risk and audit risk. It also is important for financial analysis and securities valuation because investors' losses are greater, and recovery of losses on a percentage basis lower, when the auditor is a defendant, and especially when the auditor has a more severe, negative litigation experience (Commolli et al. 2012). We examine financial reporting lawsuits filed from 2001 through 2008 and find that revenue restatements - far more than any other kind of restatements - are associated with auditors being named defendants and also auditors experiencing a more severe, negative outcome in the litigation.
Author: george j siedel
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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Author: Nargiz Abdullayeva
Publisher:
ISBN:
Category : Actions and defenses
Languages : en
Pages : 63
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Book Description
Prior literature suggests that public offering clients of Big 4 auditing firms are more likely to get sued due to their "deep pockets" which might trigger the filing of lawsuits. However, it is not clear whether variation in auditor knowledge and experience among Big 4 audit offices might affect the litigation risk. In this paper, I examine whether auditor experience in public offerings measured at the audit office level is associated with lawsuit incidence related to initial and secondary public offerings. Using a sample of U.S. IPOs and SEOs audited by Big 4 audit firms, I find that IPO clients of the auditors with higher IPO experience are less likely to get sued. Similarly, I find that SEOs audited by Big 4 offices with higher SEO experience are associated with lower lawsuit incidence. I also investigate whether auditors might use their SEO and IPO experience to mitigate litigation risk interchangeably for IPO and SEO audits, respectively. I find that SEO experience is negatively associated with lawsuit incidence in the IPO sample, but that association disappears after controlling for auditor IPO experience. However, I do not find any association between auditor IPO experience and SEO-related lawsuits. I also examine the effect of auditor IPO and SEO experiences on dismissal rate among lawsuits related to IPOs and SEOs,respectively. My results suggest that the IPO experience of auditors has a positive impact on the dismissal rate of lawsuits related to IPOs. However, I do not find a significant association between the SEO experience of auditors and the dismissal rate of SEO-related lawsuits.
Author: Suil Pae
Publisher: National Library of Canada = Bibliothèque nationale du Canada
ISBN:
Category : Auditing
Languages : en
Pages : 154
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Book Description
Author: Sue Woolley Scholz
Publisher:
ISBN:
Category : Accountants
Languages : en
Pages : 169
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Book Description
