Journal article
Opportunistic Avoidance of Litigation Loss Accruals and the Mitigating Effects of Auditors
Journal of accounting, auditing & finance, p148558
30 Dec 2021
Abstract
We find that firms with preliminary earnings that are expected to just meet analyst forecasts are more likely to only disclose (i.e., not accrue) litigation loss contingencies, claiming that the litigation event falls below the qualitative thresholds necessitating accrual. We also find that this opportunistic treatment of a subjective estimate is reduced when firms’ auditors have expertise in the defendant’s industry or have experience auditing litigation contingencies. Furthermore, we find that opportunistic disclosure usage increases when firms are more economically important to auditors’ client portfolios. Our results are robust to a series of additional tests. We provide evidence to support the Public Company Accounting Oversight Board’s (PCAOB) call for increased auditor professional skepticism toward management bias and opportunism when evaluating subjective estimates.
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Details
- Title
- Opportunistic Avoidance of Litigation Loss Accruals and the Mitigating Effects of Auditors
- Creators
- Hsin-Yi Huang - Feng Chia UniversityEric Lohwasser - Colorado State UniversityZhiyuan Yu - Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, ChinaHsihui Chang - Drexel University
- Publication Details
- Journal of accounting, auditing & finance, p148558
- Publisher
- Sage
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Accounting
- Web of Science ID
- WOS:000740956200001
- Scopus ID
- 2-s2.0-85122131812
- Other Identifier
- 991019168480704721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance