Auditors’ legal liability and client firms’ comparability: evidence from China

IF 2.8 3区 管理学 Q2 BUSINESS, FINANCE
Yanghui Liu, Jeff Zeyun Chen, W. Chi, Xiaohai Long
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引用次数: 0

Abstract

Purpose This paper aims to investigate the relation between audit firms’ switch to limited liability partnership (LLP) from limited liability company (LLC) and client firms’ earnings comparability. If LLP auditors, who have a higher liability exposure than LLC auditors, are more consistent in implementing generally accepted accounting principles and executing firm-wide audit methodologies, client firms’ earnings comparability will increase. Design/methodology/approach Using data from China, the authors examine whether client firm-pairs of LLP auditors have higher earnings comparability than client firm-pairs of LLC auditors. The authors also perform cross-sectional tests to shed light on the mechanisms through which auditors’ litigation exposure affects client firms’ comparability. Findings The authors find that firm-pairs in which both firms are audited by LLP auditors exhibit higher earnings comparability than other firm-pairs. This result is stronger when client firms are audited by the same auditor, when client firms are audited by the top 10 auditors and when the auditors are less dependent on the client firms. The authors also document that firm-pairs in which both firms are audited by LLP auditors have lower average analyst earnings forecast error and forecast dispersion. Originality/value To the best of the author’s knowledge, this study is the first to examine the relation between auditor’s litigation exposure and client firms’ earnings comparability. It also extends the literature on audit firm organizational form and audit quality.
审计师法律责任与客户事务所可比性:来自中国的证据
目的研究审计事务所从有限责任公司向有限责任合伙企业的转变与客户事务所收益可比性之间的关系。如果责任敞口高于有限责任公司审计师的有限责任合伙审计师在实施公认会计原则和执行全公司审计方法方面更加一致,客户公司的收益可比性将提高。设计/方法/方法使用来自中国的数据,作者检验了LLP审计师的客户-公司对是否比LLC审计师的客户/公司对具有更高的收益可比性。作者还进行了横断面测试,以阐明审计师的诉讼风险影响客户公司可比性的机制。研究结果作者发现,由LLP审计师审计的公司对比其他公司对表现出更高的收益可比性。当客户公司由同一审计师审计时,当客户公司被前10名审计师审计时以及当审计师对客户公司的依赖性较低时,这种结果会更强。作者还记录了两家公司都由LLP审计师审计的公司对具有较低的平均分析师盈利预测误差和预测离散度。原创性/价值据作者所知,本研究首次考察了审计师的诉讼风险与客户公司收益可比性之间的关系。它还扩展了有关审计公司组织形式和审计质量的文献。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
5.40
自引率
13.80%
发文量
45
期刊介绍: The key areas addressed are: ■Audit and Assurance (financial and non-financial) ■Financial and Managerial Reporting ■Governance, controls, risks and ethics ■Organizational issues including firm cultures, performance and development In addition, the evaluation of changes occurring in the auditing profession, as well as the broader fields of accounting and assurance, are also explored. Debates concerning organizational performance and professional competence are also covered.
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