February 15, 2024The Accounting ReviewOpen Access

Relative Liability Exposure for Negligence and Financial Reporting Quality: Evidence from the Audit Interference Rule

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Authors

MMMichael MayberryUniversity of Florida HPHyun Jong ParkTemple College WZWei ZhangUniversity of Massachusetts Amherst

Discussion

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Implication

Policy evaluation demonstrates that shifting legal liability to clients reduces restatements in corporations, indicating client liability exposure drives financial reporting quality.

Key Points

Financial statement restatements decline significantly following state-level rejections of the audit interference rule, which shifts legal liability toward corporate clients.
Path analysis reveals that audit fees increase following legal doctrine rejections, showing that greater client liability drives demand for rigorous assurance services.
Financial reporting quality improves most among large firms facing high litigation risk, indicating that client legal exposure dominates reduced auditor liability.

Cite This Study

Mayberry et al. (2024) studied this question.

synapsesocial.com/papers/68e79082b6db643587701d05 https://doi.org/10.2308/tar-2021-0757

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Implication

Policy evaluation demonstrates that shifting legal liability to clients reduces restatements in corporations, indicating client liability exposure drives financial reporting quality.

Relative Liability Exposure for Negligence and Financial Reporting Quality: Evidence from the Audit Interference Rule

Discussion

Member takes

Implication

Key Points

Cite This Study

Relative Liability Exposure for Negligence and Financial Reporting Quality: Evidence from the Audit Interference Rule

Discussion

Member takes

Implication

Key Points

Cite This Study

Also Consider

Also Consider