When Are Audit Firms Sued for Financial Reporting Failures and What Are the Lawsuit Outcomes?

• 成果类型: Article
• 署名作者: Lennox, Clive; Li, Bing
• 署名单位: University of Southern California; City University of Hong Kong
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12571
• 发表日期: 2020
• 页码: 1370-1399
• 关键词: MERITS MATTER; LITIGATION; STANDARDS

摘要

We examine how often audit firms are sued in a large sample of accounting lawsuits that allege financial reporting failures. We find an insignificant relation between the likelihood of auditor litigation and restatements, but the likelihood of auditor litigation is strongly related to the types of alleged accounting deficiencies. We also find that the auditor's type influences the probability of the auditor being sued and the size of the payouts from auditor and nonauditor defendants. In particular, the Big N firms are approximately 7 percent less likely than non-Big N firms to be named as co-defendants, and the auditor's contribution to the plaintiff's payout is significantly larger when a Big N firm is sued. Overall, our findings suggest that auditors are rarely blamed when there are allegations of financial reporting failures, but the types of accounting deficiencies and the auditor's type significantly influence the probability of the audit firm being sued and the outcomes of the lawsuits.