Financial statement misstatements, auditor litigation, and subsequent auditor behavior /
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Thesis eBook |
| Language: | English |
| Published: |
[College Station, Tex.] :
[Texas A&M University],
[2010]
|
| Subjects: | |
| Online Access: | Link to OAK Trust copy |
| Abstract: | This paper examines the occurrence and outcome of auditor litigation related to financial statement misstatements and the effect of auditor misstatement-based litigation on subsequent auditor behavior. The study is motivated by recent calls to limit auditor legal liability and the need to examine the ability of litigation to deter non-Generally Accepted Accounting Principles (GAAP) financial reporting. I find that misstatement severity is the primary driver of auditor litigation. Specifically, I find that auditor misstatement-based litigation is more likely when the misstatement is associated with fraud, a regulatory investigation, a larger stock price decline, and/or a greater number of accounting application [i.e., Financial Accounting Standards Board (FASB)/GAAP) failures. In addition, I find that auditor misstatement-based litigation is more likely to occur when the misstatement is associated with engagement fees that consist of a greater magnitude or a greater proportion of non-audit service fees. Further, I find that misstatement severity and the size of the plaintiffs? claims are the primary drivers of auditor settlements resulting from misstatement-based litigation. Specifically, I find that an auditor settlement resulting from misstatement-based litigation is more likely to occur when the misstatement is associated with fraud, a greater amount of alleged income or equity inflation over the class action time period, and/or a larger alleged percentage drop in share price over the class action time period. With respect to subsequent auditor behavior, I find evidence that auditor litigation results in more conservative subsequent auditor behavior across a litigated auditor?s office-wide client portfolio (that excludes the litigated client). Specifically, in the year following auditor litigation, I find evidence that litigation results in increased auditor constraint of client-reported positive and signed discretionary accruals, as well as longer audit report lags. |
|---|---|
| Item Description: | "Major Subject: Accounting" Title from author supplied metadata (automated record created 2010-08-20 08:31:34). Electronic resource. |
| Physical Description: | 1 online resource. |
| Bibliography: | Includes bibliographical references. |