Client Conservatism and Auditor-Client Contracting

• 成果类型: Article
• 署名作者: DeFond, Mark L.; Lim, Chee Yeow; Zang, Yoonseok
• 署名单位: University of Southern California; Singapore Management University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51150
• 发表日期: 2016
• 页码: 69-98
• 关键词: ACCOUNTING CONSERVATISM; nonaudit services; unconditional conservatism; reputation matter; earnings; QUALITY; LITIGATION; fees; accruals; overconfidence

摘要

We find that auditors of more conservative clients charge lower fees, issue fewer going concern opinions, and resign less frequently, consistent with more conservative clients imposing less engagement risk on their auditors. Using path analysis, we find evidence that both inherent risk and auditor business risk explain these associations. Also consistent with conservatism reducing auditor business risk, we find that client conservatism is associated with fewer lawsuits against auditors and with fewer client restatements. Taken together, our results are consistent with auditors viewing client conservatism as an important determinant of engagement risk that, in turn, affects auditor-client contracting decisions. Our findings should be of interest to auditors who actively manage client risk and to standard-setters who recently dropped conservatism as a desired attribute of financial reporting quality.