دانلود رایگان مقاله انگلیسی تاثیر خطر دادخواهی بر رابطه میان کیفیت حسابرسی و اندازه حسابرس - وایلی 2018

Abstract

We examine whether audit quality varies across different sizes of CPA firms under high or low auditor-specific litigation risk exposure. We measure audit quality by the issuance of modified audit opinions and the audit fees charged to clients, and we use the organizational form of CPA firms as the proxy for auditors’ litigation risk exposure, where a partnership (limited liability) CPA firm represents a high (low) litigation risk exposure. Built on Choi, Kim, Liu, and Simunic’s (2008) theoretical framework, we hypothesize that the litigation risk exposure of CPA firm moderates the association between auditor size and audit quality. Our results show that when the auditor’s liability is capped (i.e., registered as a limited liability form of CPA firm), larger size CPA firms are associated with higher audit quality when compared to smaller size CPA firms. However, this positive association between auditor size and audit quality disappears for audit firms that are subject to high litigation risk exposures (i.e., registered as a partnership form of CPA firm). Our research provides new insights on the impact of auditor-specific litigation risks on the relation between audit quality and auditor size. In particular, we show that only when auditor-specific litigation risk is limited, do large CPA firms appear to perform higher quality audits than small CPA firms.

CONCLUSIONS

Both litigation risks and auditor size have been found to be associated with audit quality. However, there is scarce empirical research examining the interactive relationship among these three important factors. We are specifically interested in answering the research question—“Does audit quality vary for different sizes of CPA firms under both high and low auditor-specific litigation risk exposure?” We examine this empirical issue using data from China because its institutional setting enables us to clearly distinguish between the litigation risks of CPA firms through their organizational forms. This allows us to investigate whether CPA firm-specific litigation risk has an impact on the association between auditor size and audit quality in terms of an auditor’s propensity to report conservatively and its audit pricing decision. Modeled on Choi et al.’s (2008) theoretical framework and based on 5,429 audits of Chinese listed companies during the period 2001–2006, our empirical findings suggest that auditor size and audit quality are positively correlated but only in the low auditor-specific litigation risk setting. In contrast, when CPA firms are subject to high auditor-specific litigation risk exposure (e.g., when they are registered in a partnership form), the audit quality spread between large and small CPA firms is smaller, and the positive effect of auditor size on audit quality diminishes. Our research suggests that high litigation risks motivate smaller size CPA firms to report more conservatively and receive higher audit fee premiums from clients.