Does the Disclosure of PCAOB Inspection Findings Increase Audit Firms' Litigation Exposure?

• 成果类型: Article
• 署名作者: Christensen, Brant E.; Lundstrom, Nathan G.; Newton, Nathan J.
• 署名单位: University of Oklahoma System; University of Oklahoma - Norman; University of Kansas; State University System of Florida; Florida State University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0151
• 发表日期: 2021
• 页码: 191-219
• 关键词: legal liability regimes; big-4 premiums; QUALITY; RISK; improve; bankruptcy; management; services; IMPACT; fees

摘要

We examine whether PCAOB inspection reports increase auditors' litigation risk. We find that inspection reports with audit deficiencies are positively associated with the number of lawsuits subsequently filed against the inspected auditor. These results are strongest when client-level lawsuit-triggering events have already occurred and when PCAOB inspection content is arguably more persuasive. Importantly, these results pertain exclusively to triennially inspected audit firms for which the set of other publicly available signals of audit quality is limited. Furthermore, we do not argue that inspection reports in isolation trigger lawsuits. Instead, once events such as restatement announcements or bankruptcies create the potential for legal action against the auditor, inspection reports provide a public signal about past noncompliance with auditing standards. This signal likely increases lawyers' perceived strength of case against the auditor before the lawsuit is filed and before lawyers have access to the audit workpapers.