The consequences of protecting audit partners’ personal assets from the threat of liability
AbstractThis study investigates the audit firm’s decision to protect its partners’ personal assets by becoming a limited liability partnership (LLP). We find that the likelihood of an audit firm switching from unlimited to limited liability is increasing in its size and exposure to litigation risk. We find no evidence that audit firms supply lower audit quality, lose market share, or charge lower audit fees after they become LLPs. However, the mix of public and private clients in audit firms’ portfolios exhibits a significant shift toward riskier publicly traded companies after the switch to limited liability.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 54 (2012)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jae
Audit liability; Audit quality; LLP;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- M42 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Auditing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002.
"How Much Should We Trust Differences-in-Differences Estimates?,"
NBER Working Papers
8841, National Bureau of Economic Research, Inc.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
- Larcker, David F. & Rusticus, Tjomme O., 2010. "On the use of instrumental variables in accounting research," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 186-205, April.
- Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
- Dye, Ronald A, 1993. "Auditing Standards, Legal Liability, and Auditor Wealth," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 887-914, October.
- Paul K. Chaney, 2002. "Shredded Reputation: The Cost of Audit Failure," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1221-1245, 09.
- Seetharaman, Ananth & Gul, Ferdinand A. & Lynn, Stephen G., 2002. "Litigation risk and audit fees: evidence from UK firms cross-listed on US markets," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 91-115, February.
- Joseph Weber & Michael Willenborg & Jieying Zhang, 2008. "Does Auditor Reputation Matter? The Case of KPMG Germany and ComROAD AG," Journal of Accounting Research, Wiley Blackwell, vol. 46(4), pages 941-972, 09.
- Mark L. DeFond, 2002. "Do Non-Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, 09.
- Geiger, Marshall A. & Raghunandan, K. & Rama, Dasaratha V., 2006. "Auditor decision-making in different litigation environments: The Private Securities Litigation Reform Act, audit reports and audit firm size," Journal of Accounting and Public Policy, Elsevier, vol. 25(3), pages 332-353.
- Hay, David & Knechel, W. Robert, 2010. "The effects of advertising and solicitation on audit fees," Journal of Accounting and Public Policy, Elsevier, vol. 29(1), pages 60-81, January.
- Paul Hribar & D. Craig Nichols, 2007. "The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 45(5), pages 1017-1053, December.
- Dye, Ronald A., 1995. "Incorporation and the audit market," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 75-114, February.
- Napier, Christopher J., 1998. "Intersections of law and accountancy: Unlimited auditor liability in the United Kingdom," Accounting, Organizations and Society, Elsevier, vol. 23(1), pages 105-128, January.
- Seyed Mahmoud Hosseinniakani & Helena Inacio & Rui Mota, 2014. "A Review on Audit Quality Factors," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 243-254, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.