An Analysis of Auditor Liability Rules

Narayanan, V.G.

doi:10.2307/2491438

Cited by 116 publications

(60 citation statements)

References 11 publications

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“…Furthermore, the results are consistent with prior literature findings that present evidence of Big auditing firms increased audit quality (Simunic and Stein, 1987;Krishnan and Krishnan, 1996;Francis and Krishnan, 1999;Ireland and Lennox, 2002;Francis and Yu, 2009;Skinner and Srinivasan, 2012). Furthermore, the results concerning both industry expert auditors and the length of audit tenures are also supported by relevant literature (Chow and Rice, 1982;Citron and Taffler, 1992;Melumad and Thoman, 1990;Narayanan, 1994;Balsam et al, 2003;Krishnan, 2003Krishnan, , 2005Chi and Chin, 2011), implying their validity as determinants of audit quality.…”

Section: Multivariate Analysis Resultssupporting

confidence: 89%

“…According to this, the auditor might become less objective and/or apply less effort toward the detection of material misstatements (Arrunada and Paz-Ares, 1997). However, the issue of audit tenure and its relation to audit quality is a balancing act between the auditor's motivation to keep the audit-client relationship and to avoid any litigation risks, while protecting the audit firm's reputation and well established brand name (Chow and Rice, 1982;Citron and Taffler, 1992;Melumad and Thoman, 1990;Narayanan, 1994).…”

Section: Prior Literaturementioning

confidence: 99%

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Attributes of audit quality and weak fiscal sustainability countries

Tahinakis

Samarinas

2017

IJBAAF

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This paper seeks to examine the effect that audit quality has on audit opinion expression in the context of the recessive Eurozone environment. Based on a sample consisting of all the European Monetary Union countries for a period of nine years (2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013) our findings suggest that the size of the auditing firm and auditor's expertise in an industry continues to be a proxy for audit quality and impacts audit opinion during the recession. However, this finding does not persist for audit tenure. These findings provide evidence with respect to audit quality differentiation in a monetary union, with a common currency and accounting standards in the presence of an economic recession. It attempts to provide useful insights for auditors, accountants and regulators concerning the regulatory framework and the efficiency of various audit policy changes especially in periods of fiscal distress.

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Section: Multivariate Analysis Resultssupporting

confidence: 89%

Section: Prior Literaturementioning

confidence: 99%

Attributes of audit quality and weak fiscal sustainability countries

Tahinakis

Samarinas

2017

IJBAAF

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“…In a formal model, Narayanan (1994) has shown that under a proportionate liability regime (in which auditors pay only for their share of the damage), auditors have a stronger incentive to minimize litigation costs by working harder than under joint and several liability regimes (in which they pay there own damages plus those of insolvent codefendants). Audit quality is likely to increase under proportionality regimes.…”

Section: Discussionmentioning

confidence: 99%

“…Our measurement of punishment severity combined three variables (negative effects for careers within company, dismissal from the firm, loss of accreditation as auditor). In the light of Narayanan's (1994) analysis, future research might use a more refined measure of firm level punishment regimes, disentangling the different kinds of incentive effects they might exert on individual auditors. This brings us to the possible limitations of our study.…”

Section: Discussionmentioning

confidence: 99%

Client acceptance decisions of Dutch auditing partners

Wittek

Zee

Mühlau

2008

J Manage Governance

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A vignette study of 567 client acceptance decisions by 67 Dutch auditors showed that the prospect of acquiring additional assignments significantly increases the likelihood that auditing partners accept an audit assignment from a new client, thereby violating a rule of the auditing profession. Audit firm strategy was found to moderate the effect of the acquisition of additional assignments: partners working in audit firms emphasizing a professional orientation are less likely to accept such risky assignments, whereas a commercial orientation of audit firms was found to exacerbate the effect of acquiring additional services. Contrary to expectations, punishment severity for professional mistakes increases the likelihood of client acceptance.

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“…Moreover, empirical research is not only inconclusive but also refers mainly to the US. Since litigation risk plays a major role in audit literature as a determinant of the auditor reporting decision (e.g., Melumad and Thoman, 1990;Narayanan, 1994), the relatively high-litigation risk of the US makes it difficult to extrapolate results to other settings 3 . In addition, most previous research has limited to examine the effects of tenure on the issuance of going-concern modified opinions (GCMO) to financially distressed firms.…”

Section: Introductionmentioning

confidence: 99%

Audit firm tenure and audit qualifications in Spain: a multinomial approach

García-Blandón¹,

Argilés²,

Martinez-Blasco³

2014

Eur. Account. Manag. Rev.

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The Green Paper on Audit Policy by the European Commission has questioned the current regulatory framework of audit rotation in the European Union and it has encouraged additional research about the effects of long audit firm tenures on independence. Prior research has mostly limited to examine audit qualifications for reasons of going concern with samples of financially distressed firms. Such approach presents limitations in terms of the generalization of results. The approach we propose allows, on the one hand, for the inclusion of all types of audit qualifications in the analysis; while, on the other hand, it takes into account the particularly serious implications of going-concern qualified opinions for both, the auditor and the audited firm. Our results show that auditors seem willing to sacrifice independence in lengthy engagements, but only regarding non-goingconcern qualified opinions. This result might have some interesting implications for policy makers, particularly in the current discussion about the necessity of mandatory audit firm rotation. If, as most papers do, we measure auditor independence only through the issuance of going-concern opinions, a mandatory firm rotation rule does not seem to be necessary. However, if all types of qualifications are considered, mandatory firm rotation could increase independence.

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An Analysis of Auditor Liability Rules

Cited by 116 publications

References 11 publications

Attributes of audit quality and weak fiscal sustainability countries

Attributes of audit quality and weak fiscal sustainability countries

Client acceptance decisions of Dutch auditing partners

Audit firm tenure and audit qualifications in Spain: a multinomial approach

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