The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality

30 Pages Posted: 16 May 2019

See all articles by Henock Louis

Henock Louis

Pennsylvania State University - Smeal College of Business

Thomas C. Pearson

University of Hawaii - Department of Accounting

Dahlia Robinson

University of South Florida

Michael N. Robinson

University of South Florida

Amy X. Sun

University of Houston

Multiple version iconThere are 2 versions of this paper

Date Written: June 2019

Abstract

Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.

Suggested Citation

Louis, Henock and Pearson, Thomas C. and Robinson, Dahlia and Robinson, Michael N. and Sun, Amy X., The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality (June 2019). Journal of Empirical Legal Studies, Vol. 16, Issue 2, pp. 381-410, 2019. Available at SSRN: https://ssrn.com/abstract=3388935 or http://dx.doi.org/10.1111/jels.12218

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

Thomas C. Pearson

University of Hawaii - Department of Accounting

United States

Dahlia Robinson

University of South Florida ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States
8139746888 (Phone)

Michael N. Robinson

University of South Florida

Tampa, FL 33620
United States

Amy X. Sun

University of Houston

Houston, TX 77204
United States

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