The Changing Landscape of Auditor Litigation

62 Pages Posted: 30 Nov 2017 Last revised: 16 Aug 2020

See all articles by Colleen Honigsberg

Colleen Honigsberg

Stanford Law School

Shivaram Rajgopal

Columbia Business School

Suraj Srinivasan

Harvard Business School

Date Written: September 27, 2017


We provide a comprehensive overview of shareholder litigation against auditors since the passage of the PSLRA. The number of lawsuits per year has declined, dismissals have increased, and settlements in recent years have declined. Our study asks why. Because we find that the likelihood an auditor is sued following a severe restatement has significantly declined in recent years, it does not appear that the decline can be attributed solely to increases in audit quality. Instead, we consider whether the Supreme Court cases limiting the scope of Rule 10b-5 against private actors may have led to the decline. To study this possibility, we focus on the Supreme Court’s 2007 and 2011 rulings in Tellabs v. Makor and Janus v. First Derivative, respectively. Our analysis provides strong evidence that the higher liability standards imposed by Janus significantly reduced auditors’ liability exposure, but we find only limited evidence that the pleading standard imposed by Tellabs had a significant effect.

Keywords: auditor litigation, Tellabs, Section 10(b), Section 11, audit quality, Janus, PSLRA, class-action litigation

JEL Classification: K22, K41, G14, M41, M42

Suggested Citation

Honigsberg, Colleen and Rajgopal, Shivaram and Srinivasan, Suraj, The Changing Landscape of Auditor Litigation (September 27, 2017). Stanford Law and Economics Olin Working Paper No. 512, Columbia Business School Research Paper No. 17-110, Available at SSRN: or

Colleen Honigsberg (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Suraj Srinivasan

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States


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