피감사기업의 소송위험이 감사인의 감사노력에 미치는 영향 = The Effect of Litigation Risk of Client Firms on the Auditor`s Audit Effort

다국어 초록 (Multilingual Abstract)

This study investigate the effect of litigation against client firm on the auditor`s audit effort. Litigation against the client firm can potentially influence the inherent risk of the firm, thereby increase the audit risk for the client. Both audit-related and non-audit-related litigation can influence the contingent liability/loss of the firm and thus inherent risk of the firm. As a result, auditor can increase audit effort for the client by increasing the audit hour in order to compensate for the increased risk. Prior literature on firm litigation in accounting and auditing contexts mostly focus on financial ratios or industry characteristics to proxy for the litigation risk indirectly. By contrast, this study directly focus on the existence of litigation on the firm. Specifically, this study classify litigation risk of a firm to the following four categories: (1) the existence of ongoing litigation against the firm, (2) the existence of special mention on the litigation in the audit report, (3) the number of ongoing litigations, and (4) total amount of claimed litigation value. For empirical analyses, this study hand-collects litigation-related data from 2002 to 2007. The empirical findings reveal that the four proxies of the litigation risk employed in this study are all positively related to audit hours, after controlling for other known factors that are correlated with the audit hour. The findings cleary suggest that auditors reflect the audit-related litigation risk in their audit planning and engagement. Thus, these findings provide valuable implications to regulators, academics, as well as practitioners in understanding the mechanism that auditors reflect audit risks.

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