Abstract
We report an experiment examining the effect of three factors on professional Hong Kong liquidators' decisions to bring legal action in negligence against auditors. Factors were (a) the strength (merit) of the supporting evidence (arguable vs. over-whelming), (b) the type of alleged audit failure (failure to report financial statement errors vs. management fraud) and (c) audit firm type (Big 6 vs. non-Big 6). We find evidence that liquidators' litigation decisions are influenced by case merit. We also find that liquidators were marginally more likely to institute legal action against a Big 6 than against a non-Big 6 auditor. However, we find no evidence that the type of alleged audit failure influences litigation decisions.
| Original language | English |
|---|---|
| Pages (from-to) | 363-374 |
| Number of pages | 12 |
| Journal | Journal of Business Ethics |
| Volume | 46 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - Sept 2003 |
| Externally published | Yes |
Keywords
- Audit firm size
- Audit litigation
- British common law
- Case merit
- Financial statement errors
- Management fraud
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