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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- Eberhard Feess, 2012. "Malpractice liability, technology choice and negative defensive medicine," The European Journal of Health Economics, Springer, vol. 13(2), pages 157-167, April.
- Dari-Mattiacci, Giuseppe & Schafer, Hans-Bernd, 2007.
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- Eberhard Feess, 2013. "Negligence standards and care levels when damages depend on sales prices," European Journal of Law and Economics, Springer, vol. 36(2), pages 389-405, October.
- Guiseppe Dari-Mattiacci & Hans-Bernd Schäfer, 2006. "The Core of Pure Economic Loss," Tinbergen Institute Discussion Papers 06-068/1, Tinbergen Institute.
- Guiseppe Dari-Mattiacci & Hans-Bernd Schäfer, 2006.
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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 & Francis Journals, vol. 9(3), pages 371-385.
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