Privacy Disclosure and Auditing: An Exploratory Study
University of Auckland
University of Auckland - Department of Accounting and Finance
August 21, 2013
This paper reports a study of privacy breaches in the U.S. from 2005-2011. We explore potential benefits of data privacy disclosure and auditing. Privacy auditing is a mechanism to help organisations to be vigilant in protecting information privacy, and to avoid penalties or damage to reputation and losing customer trust. Recently, privacy audits have been imposed on several high-profile organizations, but little is known about the benefits of privacy audits. We examined whether companies with privacy disclosures in their audited financial statements (as a proxy for privacy audits) were more or less likely to incur subsequent privacy breaches, and whether companies incurring breaches were more or less likely to make privacy disclosures. The results show that there are empirical regularities consistent with the privacy disclosures in the audited financial statements having some effect. Companies disclosing privacy risks are less likely to incur a breach of privacy related to unintentional disclosure of privacy information; while companies suffering a breach of privacy related to credit cards are more likely to disclose privacy risks afterwards. Disclosure after a breach is negatively related to privacy breaches related to hacking, and disclosure before a breach is positively related to breaches concerning insider trading. These results may be related to the risk of privacy breaches. Privacy disclosure in the regulatory risks section of a 10-K report is associated with a larger number of records affected by a breach of privacy. There are potential benefits from greater of privacy disclosure and auditing, and this area is worthy of further investigation.
Number of Pages in PDF File: 41
Keywords: Privacy auditing, Data privacy
JEL Classification: L86, M41, O34working papers series
Date posted: May 30, 2013 ; Last revised: August 22, 2013
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