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Litigation Risk (litigation + risk)
Selected AbstractsIndependence Threats, Litigation Risk, and the Auditor's Decision Process,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2005Allen D. Blay Abstract This study examines the effect of independence threats and litigation risk on auditors' evaluation of information and subsequent reporting choices. Using a Web-based experiment, I tracked auditors' information gathering and evaluation leading to a going-concern reporting decision. Specifically, 48 audit managers assessed client survival likelihood, gathered additional information, and suggested audit report choices. I found that auditors facing high independence threats (fear of losing the client) evaluated information as more indicative of a surviving client and were more likely to suggest an unmodified audit report, consistent with client preferences. In contrast, auditors facing high litigation risk evaluated information as more indicative of a failing client and were more likely to suggest a modified audit report. In addition, the association between risk and report choice was fully mediated by final information evaluation. This suggests that it is unlikely that different reporting choices resulted from a conscious choice bias, but rather that motivated reasoning during evidence evaluation plays a key role in the effect of risk in auditor decision making. [source] Misstatement Direction, Litigation Risk, and Planned Audit InvestmentJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2001Orie Barron This study reports the results of an experiment showing that auditor assessments of litigation risk and planned audit investments are higher when potential errors overstate financial performance than when those errors understate performance. This result is much stronger in the presence of high levels of litigation risk in the client's industry. These results suggest that in industries where litigation risk is high audited financial statements may contain more unintentional material understatement errors than overstatement errors. Thus, litigation risk,through its effect on auditors,may encourage financial statements that understate firm performance [source] Independence Threats, Litigation Risk, and the Auditor's Decision Process,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2005Allen D. Blay Abstract This study examines the effect of independence threats and litigation risk on auditors' evaluation of information and subsequent reporting choices. Using a Web-based experiment, I tracked auditors' information gathering and evaluation leading to a going-concern reporting decision. Specifically, 48 audit managers assessed client survival likelihood, gathered additional information, and suggested audit report choices. I found that auditors facing high independence threats (fear of losing the client) evaluated information as more indicative of a surviving client and were more likely to suggest an unmodified audit report, consistent with client preferences. In contrast, auditors facing high litigation risk evaluated information as more indicative of a failing client and were more likely to suggest a modified audit report. In addition, the association between risk and report choice was fully mediated by final information evaluation. This suggests that it is unlikely that different reporting choices resulted from a conscious choice bias, but rather that motivated reasoning during evidence evaluation plays a key role in the effect of risk in auditor decision making. [source] Auditor conservatism and voluntary disclosure: Evidence from the Year 2000 systems issueACCOUNTING & FINANCE, Issue 1 2003Peter M. Clarkson This study further examines the phenomenon of conservative auditor behaviour by considering the level of voluntary disclosure of Year 2000 remediation information in company annual reports. Previous studies have provided evidence of conservative auditor behaviour by examining the link between Big 6 auditor choice and accruals (Francis and Krishnan 1999; Becker et al., 1998; Defond and Subramanyam 1998). Protecting their reputation capital increases Big 6 auditor incentives to act conservatively to avoid litigation risk. We propose and find that Big 6 auditor clients disclose more Year 2000 remediation information than non,Big 6 auditor clients. [source] Misstatement Direction, Litigation Risk, and Planned Audit InvestmentJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2001Orie Barron This study reports the results of an experiment showing that auditor assessments of litigation risk and planned audit investments are higher when potential errors overstate financial performance than when those errors understate performance. This result is much stronger in the presence of high levels of litigation risk in the client's industry. These results suggest that in industries where litigation risk is high audited financial statements may contain more unintentional material understatement errors than overstatement errors. Thus, litigation risk,through its effect on auditors,may encourage financial statements that understate firm performance [source] | ||||||||||