The Impacts of Judge Ideology on Auditors’ Litigation Risk: Evidence from Auditors’ Behaviors

Abstract

This study investigates whether and how judge ideology affects auditors’ litigation risk. Using the appointing president’s political affiliation to measure federal judge ideology, we document that audit fees charged to auditees locating in jurisdictions of circuit courts with more Democratic judges are higher. We also document that the auditees locating in jurisdictions of circuit courts with more Democratic judges are more likely to receive going concern opinions. We do not find meaningful impact of judge ideology on audit quality. We interpret our results as that judge ideology is an important factor in the legal environment that affects auditors’ behavior and auditors believe that the impact of judge ideology is resulted from political consideration rather than from interpretation of auditors’ professionalism.

Keywords: judge ideology, audit litigation risk, auditor behavior

JEL Classification: k40