德勤－复旦会计论坛系列讲座之一百二十七

　　时间：2017年9月12日（周二）下午13：30

　　地点：史带楼503室

　　主持人: 原红旗 教授

　　演讲嘉宾：Limei Che (University College of Southeast Norway)

　　Title：Litigation and Reputational Risks and Audit Effort

　　Abstract：While there is evidence that audit pricing is higher for firms with public equity (public firms) than for firms with private equity (private firms), little is known on whether the higher prices charged to public firms are driven by more audit effort or pure risk premiums. This paper fills this gap by examining whether audit teams exert more audit effort for firms with higher litigation and reputational (L&R) risks. It uses a unique dataset, provided by a Swedish Big 4 audit firm, which includes 909 large audit teams with at least three different ranks of auditors and contains disaggregated audit hours and corresponding audit costs for each team member. We use public firms to proxy firms with higher L&R risks, and surrogate audit effort by both the amount of audit hours and audit costs, where the latter take into account both the number of hours and billing rates. We predict that audit teams spend more total effort for firms with higher L&R risks (Hypothesis 1), and that there are more effort associated with partners for firms with higher L&R risks (Hypothesis 2). Using both the full sample and the propensity score matched sample, we provide strong evidence for both hypotheses. The results are significant both statistically and economically. Additional analyses show that the audit firm also allocates more effort of directors and senior managers to firms with higher L&R risks, but not more effort of auditors in lower ranks. These results suggest that the Big 4 firm spends more total effort and allocates more resources of higher-ranked auditors, especially audit partners, to alleviate the negative effects of L&R risks. Hence, the higher audit pricing of public firms compared with private firms documented in the literature is not (entirely) driven by pure risk premium. We also examine whether audit teams exert more effort in firms that are privately held subsidiaries of public firms, compared to other private firms, but do not find supportive evidence. This study contributes to the literature on audit production by shedding new insights on Big 4 audit firms’ effort on different types of audit clients, e.g., different levels of litigation and reputational risks.

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