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Article: Scope of auditors' liability, audit quality, and capital investment
Title | Scope of auditors' liability, audit quality, and capital investment |
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Authors | |
Keywords | Audit Quality Auditors' Liability Double Moral Hazard Sequential Borrowing Underinvestment |
Issue Date | 2002 |
Publisher | Springer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1380-6653 |
Citation | Review Of Accounting Studies, 2002, v. 7 n. 1, p. 97-122 How to Cite? |
Abstract | One of the fundamental issues in the discussion of auditors' liability is to whom auditors should be held liable for ordinary negligence under common law. Three judicial viewpoints prevail: the restrictive privity approach, the more liberal Restatement approach, and the most liberal foreseeability approach. To compare these three approaches from an efficiency perspective, this paper develops a model that features an owner-managed firm, an independent auditor, a continuum of unrelated lenders, and an impartial court. Double effort-incentive problems appear for the firm and the auditor. The firm has an additional incentive problem due to the sequential nature of its borrowing. This paper shows that the effort-incentive problem and the sequential borrowing problem of the firm render unambiguous improvements in audit effort/quality, capital investment, and social welfare as the judicial approach governing the scope of auditors' liability becomes more conservative. © 2002 Kluwer Academic Publishers. |
Persistent Identifier | http://hdl.handle.net/10722/177738 |
ISSN | 2023 Impact Factor: 4.8 2023 SCImago Journal Rankings: 5.481 |
SSRN | |
References |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Chan, DK | en_US |
dc.contributor.author | Wong, KP | en_US |
dc.date.accessioned | 2012-12-19T09:39:45Z | - |
dc.date.available | 2012-12-19T09:39:45Z | - |
dc.date.issued | 2002 | en_US |
dc.identifier.citation | Review Of Accounting Studies, 2002, v. 7 n. 1, p. 97-122 | en_US |
dc.identifier.issn | 1380-6653 | en_US |
dc.identifier.uri | http://hdl.handle.net/10722/177738 | - |
dc.description.abstract | One of the fundamental issues in the discussion of auditors' liability is to whom auditors should be held liable for ordinary negligence under common law. Three judicial viewpoints prevail: the restrictive privity approach, the more liberal Restatement approach, and the most liberal foreseeability approach. To compare these three approaches from an efficiency perspective, this paper develops a model that features an owner-managed firm, an independent auditor, a continuum of unrelated lenders, and an impartial court. Double effort-incentive problems appear for the firm and the auditor. The firm has an additional incentive problem due to the sequential nature of its borrowing. This paper shows that the effort-incentive problem and the sequential borrowing problem of the firm render unambiguous improvements in audit effort/quality, capital investment, and social welfare as the judicial approach governing the scope of auditors' liability becomes more conservative. © 2002 Kluwer Academic Publishers. | en_US |
dc.language | eng | en_US |
dc.publisher | Springer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1380-6653 | en_US |
dc.relation.ispartof | Review of Accounting Studies | en_US |
dc.rights | The original publication is available at www.springerlink.com | - |
dc.subject | Audit Quality | en_US |
dc.subject | Auditors' Liability | en_US |
dc.subject | Double Moral Hazard | en_US |
dc.subject | Sequential Borrowing | en_US |
dc.subject | Underinvestment | en_US |
dc.title | Scope of auditors' liability, audit quality, and capital investment | en_US |
dc.type | Article | en_US |
dc.identifier.email | Chan, DK: dkchan@hkucc.hku.hk | en_US |
dc.identifier.email | Wong, KP: kpwongc@hkucc.hku.hk | en_US |
dc.identifier.authority | Chan, DK=rp01046 | en_US |
dc.identifier.authority | Wong, KP=rp01112 | en_US |
dc.description.nature | postprint | en_US |
dc.identifier.doi | 10.1023/A:1017983614986 | - |
dc.identifier.scopus | eid_2-s2.0-33845606339 | en_US |
dc.identifier.hkuros | 67950 | - |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-33845606339&selection=ref&src=s&origin=recordpage | en_US |
dc.identifier.volume | 7 | en_US |
dc.identifier.issue | 1 | en_US |
dc.identifier.spage | 97 | en_US |
dc.identifier.epage | 122 | en_US |
dc.publisher.place | United States | en_US |
dc.identifier.ssrn | 277931 | - |
dc.identifier.scopusauthorid | Chan, DK=7402216890 | en_US |
dc.identifier.scopusauthorid | Wong, KP=7404759417 | en_US |
dc.identifier.issnl | 1380-6653 | - |