Fraud Type and Auditor Litigation: An Analysis of Sec Accounting and Auditing Enforcement Releases

Posted: 27 Jan 1999

See all articles by Sarah E. Bonner

Sarah E. Bonner

University of Southern California

Zoe-Vonna Palmrose

University of Southern California

Susan M. Young

Fordham University

Abstract

This study examines whether certain types of financial reporting fraud result in a higher likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect commonly occurring frauds or those that stem from fictitious transactions. We examine companies with SEC Accounting and Auditing Enforcement Releases and designate whether each fraud present in their financial statements is common and/or arises from fictitious transactions. We then examine whether these types of fraud are related to auditor litigation in analyses that control for various client, auditor and case characteristics. Our results provide some support for our two primary hypotheses-auditors are more likely to be sued when the financial statement frauds are of a common variety or when the frauds arise from fictitious transactions.

JEL Classification: M49

Suggested Citation

Bonner, Sarah E. and Palmrose, Zoe-Vonna and Young, Susan M., Fraud Type and Auditor Litigation: An Analysis of Sec Accounting and Auditing Enforcement Releases. The Accounting Review, October 1998. Available at SSRN: https://ssrn.com/abstract=146408

Sarah E. Bonner (Contact Author)

University of Southern California ( email )

Marshall School of Business
Los Angeles, CA 90089-0441
United States
213-740-5025 (Phone)
213-747-2815 (Fax)

Zoe-Vonna Palmrose

University of Southern California ( email )

Marshall School of Business, 0441
Los Angeles, CA 90089-0441
United States
213-740-5019 (Phone)
213-747-2815 (Fax)

Susan M. Young

Fordham University ( email )

1790 Broadway
Suite 11-13
New York, NY 10019
United States
646.312.8245 (Phone)
646.312.8295 (Fax)

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