Auditing Standards, Legal Liability, and Auditor Wealth
AbstractThere has been an enormous increase in auditing and accounting standards and in litigation against auditors. This paper examines some of the consequences of these changes by developing a model of the audit market relating auditors' liability to auditing standards. The paper demonstrates how equilibrium audit fees depend on both the informational value of the audit and the option value of the claim financial statement users have on the auditor's wealth in the event the audit is determined to have been substandard. Auditors' attitudes toward and responses to auditing standards are studied, and characteristics of optimal liability rules are evaluated. Copyright 1993 by University of Chicago Press.
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 University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 101 (1993)
Issue (Month): 5 (October)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JPE/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Ball, Ray & Jayaraman, Sudarshan & Shivakumar, Lakshmanan, 2012. "Audited financial reporting and voluntary disclosure as complements: A test of the Confirmation Hypothesis," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 136-166.
- Marco Pagano & Giovanni Immordino, 2007.
"Optimal Regulation of Auditing,"
CESifo Economic Studies,
CESifo, vol. 53(3), pages 363-388, September.
- Giovanni Immordino & Marco Pagano, 2005. "Optimal Regulation of Auditing," CSEF Working Papers 133, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 May 2007.
- Marco Pagano & Giovanni Immordino, 2007. "Optimal Regulation of Auditing," CESifo Working Paper Series 1980, CESifo Group Munich.
- Numata, Shingo & Takeda, Fumiko, 2010. "Stock market reactions to audit failure in Japan: The case of Kanebo and ChuoAoyama," The International Journal of Accounting, Elsevier, vol. 45(2), pages 175-199, June.
- Caramanis, Constantinos & Lennox, Clive, 2008. "Audit effort and earnings management," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 116-138, March.
- Jevons Lee, Chi-Wen & Liu, Chiawen & Wang, Taychang, 1999. "The 150-hour rule," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 203-228, April.
- John, Kose & John, Teresa A., 2006. "Managerial incentives, derivatives and stability," Journal of Financial Stability, Elsevier, vol. 2(1), pages 71-94, April.
- Chi, Wuchun & Wang, Chenchin, 2010. "Accounting conservatism in a setting of Information Asymmetry between majority and minority shareholders," The International Journal of Accounting, Elsevier, vol. 45(4), pages 465-489, December.
- Luypaert, Mathieu & Van Caneghem, Tom, 2012. "An empirical analysis of factors related to auditor switching after corporate takeovers," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/408650, Katholieke Universiteit Leuven.
- Chang, Xin & Dasgupta, Sudipto & Hilary, Gilles, 2005. "The Effect of Auditor Choice on Financing Decisions," CEI Working Paper Series 2005-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- 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.
- Dennis M. O'Reilly, 2010. "Do investors perceive the going-concern opinion as useful for pricing stocks?," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(1), pages 4-16, January.
- Andrew McLennan & In-Uck Park, 2003. "The Market for Liars: Reputation and Auditor Honesty," ISER Discussion Paper 0587, Institute of Social and Economic Research, Osaka University.
- Dye, Ronald A., 1995. "Incorporation and the audit market," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 75-114, February.
- Tom Van Caneghem, 2010. "Audit pricing and the Big4 fee premium: evidence from Belgium," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(2), pages 122-139, February.
- Forster, Josef, 2008. "The Optimal Regulation of Credit Rating Agencies," Discussion Papers in Economics 5169, University of Munich, Department of Economics.
- Louis-Philippe Sirois & Sophie Marmousez & Dan Simunic, 2012. "Big 4 and non-Big 4 Audit Production Costs: Office Level Audit Technology and the Impact on Audit Fees," Post-Print hal-00691147, HAL.
- Lennox, Clive & Li, Bing, 2012. "The consequences of protecting audit partners’ personal assets from the threat of liability," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 154-173.
- Guedhami, Omrane & Pittman, Jeffrey A. & Saffar, Walid, 2009. "Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 151-171, December.
- Hope, Ole-Kristian & Langli, John Christian & Thomas, Wayne B., 2012. "Agency conflicts and auditing in private firms," Accounting, Organizations and Society, Elsevier, vol. 37(7), pages 500-517.
- Mohd Hassan Che Haat & Rashidah Abdul Rahman & Sakthi Mahenthiran, 2008. "Corporate governance, transparency and performance of Malaysian companies," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(8), pages 744-778, September.
- Mehmet Ünsal Memis & Emin Hüseyin Cetenak, 2012. "Earnings Management, Audit Quality and Legal Environment: An International Comparison," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 460-469.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.