Auditor Liability and the Precision of Auditing Standards
AbstractThis paper deals with the precision of auditing standards under a negligence liability system for auditors. Auditing standards such as, e.g., GAAS in the US and GoA in Germany provide rules for judging the auditors' due care and are supposed to serve both descriptive and normative purposes. In order to fulfill these functions, it is usually hypothesized that the standards must be made as precise as possible. This paper argues, however, that vague standards need not be detrimental. In fact, it is shown that for each precise standard there exists a vague standard that outperforms the precise standard equilibrium in terms of auditing efforts, quality of the financial statements, costs of using the legal system, and direct as well as total auditing costs.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 155 (1999)
Issue (Month): 1 (March)
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Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- M49 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Other
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- Dari-Mattiacci, Giuseppe & Schafer, Hans-Bernd, 2007.
"The core of pure economic loss,"
International Review of Law and Economics,
Elsevier, vol. 27(1), pages 8-28, March.
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- Ralf Ewert & Eberhard Feess & Martin Nell, 2000. "Auditor liability rules under imperfect information and costly litigation: the welfare-increasing effect of liability insurance," European Accounting Review, Taylor and Francis Journals, vol. 9(3), pages 371-385.
- Guiseppe Dari-Mattiacci & Hans-Bernd Schäfer, 2006. "The Core of Pure Economic Loss," Tinbergen Institute Discussion Papers 06-068/1, Tinbergen Institute.
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