Litigation risk, auditor tenure, and auditor specialisation and their effect on reporting quality

Essam Elshafie

American Journal of Finance and Accounting, 2016, vol. 4, issue 3/4, 235-260

Abstract: Prior research on the effect of client importance on audit quality or financial reporting quality provides mixed evidence, whether before or after the Sarbanes Oxley Act of 2002. I test whether the association between client importance and financial reporting quality is affected by other related constructs that mitigate the association between these two variables. Using data over the period 2000-2014, I first test the effect of client importance on financial reporting quality measured by the absolute value of performance-adjusted discretionary accruals; secondly, I test whether litigation risk, auditor tenure, and auditor specialisation mitigate this effect. The results show that there is a negative effect of client importance on financial reporting quality. However, the three variables tested do not seem to mitigate the effect of client importance on financial reporting quality.

Keywords: audit client pressure; litigation risk; auditor tenure; auditor specialisation; auditor tenure; financial reporting quality; auditing; client importance. (search for similar items in EconPapers)
Date: 2016
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