The Effect of Litigation on Independent Auditor Selection
Abstract
We examine the role of past litigation in the selection of independent auditors. Using a sample of persons typically involved in auditor selection, we find that any litigation announcement alleging audit improprieties greatly reduces the auditor’s likelihood of hire regardless of the type of legal action announced or the degree of direct involvement by the auditor. Based on these findings, litigation imposes an indirect (and potentially substantial) cost by impeding the CPA’s ability to attract new clients.
Keywords
Citation
Allen, M.F., Linville, M. and Stott, D.M. (2005), "The Effect of Litigation on Independent Auditor Selection", American Journal of Business, Vol. 20 No. 1, pp. 37-45. https://doi.org/10.1108/19355181200500004
Publisher
:Emerald Group Publishing Limited
Copyright © 2005, Emerald Group Publishing Limited