Factors Affecting the Outcomes of Legal Claims against Auditors

Maksymov, Pickerd, Lowe, Peecher, and Reffett (2020b) draw insights based on interviews with 27 prominent audit litigation attorneys about the factors affecting the initiation of legal claims against auditors and how such factors affect settlement outcomes. We summarize their key findings and discuss important implications for audit practitioners. Specifically, we focus on the key factors that affect plaintiff attorneys’ willingness to pursue legal claims against auditors, including the merits of the claim, size of alleged economic damages, auditors’ ability to pay, and the expected cost to pursue the claim. We also discuss the reasons why most audit disputes settle (as opposed to resolving at trial) and the factors affecting settlement outcomes. We hope the insights provided enhance audit practitioners’ understanding of litigation and the settlement process to allow them to manage claims in a less intimidated and ultimately more strategic manner.