The Effects of Frequent and Fictitious Frauds on Auditor Litigation: An Analysis of Sec Accounting and Auditing Enforcement Releases

Posted: 1 Jun 1998

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

Date Written: February 1998

Abstract

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

Bonner, Sarah E. and Palmrose, Zoe-Vonna and Young, Susan M., The Effects of Frequent and Fictitious Frauds on Auditor Litigation: An Analysis of Sec Accounting and Auditing Enforcement Releases (February 1998). Available at SSRN: https://ssrn.com/abstract=87908

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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