Actuaries' Perceptions of Variables Affecting the Independent Auditor's Legal Liability.

Abstract ABSTRACT: This study employs the conceptual framework of Brunswik's Lens Model to relate empirically actuaries' perceptions of the exposure of an accounting firm to litigation and five conditions common to audit engagements. The five variables studied are the client's financial condition, the client's size, the accounting firm's size, the accounting firm's policy concerning auditor rotation, and the relative amount of write-up work done by the accounting firm. Unequivocal consensus concerning the impact of the variables on the risk of lawsuit occurs only with respect to increased risk for clients with weak financial conditions. However, considerable evidential support suggests a positive relationship between increased risk and the size of the accounting firm and the client. Auditor rotation and the relative amount of write-up work, however, do not exhibit significant impacts on the actuaries' perceptions regarding changes in the risk of lawsuit.