The Effects of Frequent and Fictitious Frauds on Auditor Litigation: An Analysis of Sec Accounting and Auditing Enforcement Releases
Posted: 1 Jun 1998
Date Written: February 1998
This study examines whether frequent and fictitious financial statement frauds increase the likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect frauds with these characteristics. We use companies with SEC Accounting and Auditing Enforcement Releases for our fraud sample, then designate whether the types of fraud present in their financial statements are frequent and fictitious. We examine whether these fraud characteristics 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 financial statement frauds are frequent and fictitious.
JEL Classification: M41, G33
Suggested Citation: Suggested Citation