The Effect of Litigation on Independent Auditor Selection

Abstract

We examine the role of past litigation in the selection of independent auditors. Using a sample of persons typically involved in auditor selection, we find that any litigation announcement alleging audit improprieties greatly reduces the auditor's likelihood of hire regardless of the type of legal action announced or the degree of direct involvement by the auditor. Based on these findings, litigation imposes an indirect (and potentially substantial) cost by impeding the CPA's ability to attract new clients.We manipulate a public signal of audit litigation... to determine if and how this information affects a...decision to hire the auditor.

The impact of corporate governance on auditor choice: Evidence from China

“…Ashbaugh and Warfield (2003) suggest that, since stakeholders want reliable financial information, external audits play a corporate governance role as an important monitoring device in financial reporting process, so the independent audits are an important component in corporate governance (Allen et al, 2005;DeFond et al, 2000). Thus there is a positive relationship between the quality of corporate governance and the credibility of financial reporting (Cohen et al, 2002;Farbar, 2005).…”

“…However, a variety of definitions are used to proxy for audit quality in the literature. Due to the inability of directly observing audit quality, several observable factors are used as a surrogate, including the size of audit firms (DeAngelo, 1981;Palmrose, 1988), tenure on audit engagement (Simunic & Stein, 1987), audit structure (Knapp, 1991), litigations or SEC actions against listed firms and their auditors (Allen, Linville, & Scott, 2005), and auditors' industrial expertise composition (Schauer, 2002). A high-quality auditor should have independence (relationship based), sufficient expertise (technique based), and high integrity (honesty and forthrightness).…”

Pengaruh Independensi, Keahlian Profesional, dan Pengalaman Kerja pada Kinerja Pengawas Koperasi Serba Usaha

“…Penelitian (Putri & Suputra, 2013) membuktikan bahwa independensi berpengaruh positif terhadap kinerja auditor. (Allen et al, 2005) menyatakan hal yang sama bahwa independensi berpengaruh positif terhadap kinerja auditor, yang dapat disimpulkan bahwa semakin tinggi independensi maka kinerja auditor yang dihasilkan semakin baik. Hal ini juga diperkuat dengan penelitian yang dilakukan oleh (Gustia, 2014) membuktikan bahwa independensi berpengaruh pada kinerja auditor.…”

Pengaruh Keahlian Profesional, Independensi, Tingkat Pendidikan dan Pengalaman Kerja terhadap Kinerja Pengawas Kas BPR

“…desyanti & Ratnadi ( 2008), juga menemukan bahwa variabel independensi berpengaruh pada kinerja auditor. Menurut Allen et al (2005), menyatakan bahwa independensi terbukti berpengaruh positif terhadap kinerja auditor, yang dapat disimpilkan bahwa semakin tinggi independensi auditor maka kinerja auditor yang dihasilkan akan semakin lebih baik. H2: Independensi berpengaruh positif dan signifikan pada kinerja pengawas kas BPR.…”