Fraud type and auditor litigation: an analysis of SEC accounting and auditing enforcement releases

Article Abstract:

A study investigated the impact of the type of financial statement fraud on the probability of litigation against independent auditors. This research examined the frauds found in the financial statements of companies covered by the SEC Accounting and Auditing Enforcement Releases between 1982 and 1995. Each fraud was assigned as either commonly occurring or resulting from fictitious transactions. Findings revealed that the likelihood of auditors being sued is higher when the frauds are the result of fictitious transactions or when the frauds are common occurrences. The potentiality of litigation against auditors was found to be a reflection of plaintiff lawyers' anticipation of the logical processes of judges and juries. Implications are discussed.

Accounting and auditing, Fraud, Malpractice, United States. Securities and Exchange Commission, Financial statements

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The relation of audit contract type to audit fees and hours

Article Abstract:

The effects of fixed fee or cost-reimbursement audit contract types on audit fees and audit hours are examined. There is a hypothesized difference in contract hours and price because of differences in risk-sharing and incentives for efficiencies between the two types of contracts. Data was collected from 361 companies issuing audited financial statements. Results indicate that: fixed fee contracts produce lower audit fees; contract type has no effect on audit hours; and fixed fee contracts are used most frequently in the early years of auditor-client relationships. Results also indicate that auditor type, company ownership, and audit performance timeframe were not related to contract type choices.

Contracts

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An analysis of auditor litigation and audit service quality

Article Abstract:

The litigation activities of independent auditors are compared in order to assess litigation as a way of making distinction in quality among auditors. Empirical evidence is analyzed from a sample of legal cases involving Big Eight and large non-Big Eight firms. As a group, non-Big Eight firms tend to have higher litigation activity than Big Eight firms. Existing research that supports Big Eight firms as quality-differentiated auditors is consistent with these results.

Cases, Laws, regulations and rules

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