To Sue or Not to Sue: An Experimental Study of Factors Affecting Hong Kong Liquidators Audit Litigation Decisions [Book Review]

Journal of Business Ethics 46 (4):363 - 374 (2003)

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. overwhelming), (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.
Keywords audit firm size  audit litigation  British common law  case merit  financial statement errors  management fraud
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Reprint years 2004
DOI 10.1023/A:1025624329105
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