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Auditing Standards, Legal Liability, and Auditor Wealth
Abstract
There has been an enormous increase in auditing and accounting standards and in litigation against auditors. This paper examines some of the consequences of these changes by developing a model of the audit market relating auditors' liability to auditing standards. The paper demonstrates how equilibrium audit fees depend on both the informational value of the audit and the option value of the claim financial statement users have on the auditor's wealth in the event the audit is determined to have been substandard. Auditors' attitudes toward and responses to auditing standards are studied, and characteristics of optimal liability rules are evaluated.
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Cited by
A review of archival auditing research
DeFond, M., & Zhang, J. (2014) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2014.09.002 · Cited by 3,188
Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross‐country Evidence*
Choi, J., Kim, J., Liu, X., & Simunic, D. A. (2008) · Contemporary Accounting Research · doi:10.1506/car.25.1.2 · Cited by 578
Lobo, G. J., & Zhao, Y. (2013) · The Accounting Review · doi:10.2308/accr-50440 · Cited by 441
Do school ties between auditors and client executives influence audit outcomes?
Guan, Y., Su, L. (., Wu, D., & Yang, Z. (2016) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2015.09.003 · Cited by 412
Aobdia, D. (2019) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2018.09.001 · Cited by 373
Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners
Guedhami, O., Pittman, J. A., & Saffar, W. (2009) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2009.08.003 · Cited by 286
Metadata
- Authors
- Dye, R. A.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1993-10
- Volume
- 101
- Issue
- 5
- Pages
- 887-914
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2037087037
- Cited by
- 778
- References
- 0
- FWCI
- 2.30
- Type
- journal article
- Language
- en
- Open access
- closed
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