The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality

Henock Louis, Thomas C. Pearson, Dahlia M. Robinson, Michael N. Robinson, Amy X. Sun

Research output: Contribution to journalArticle

Abstract

Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.

Original languageEnglish (US)
Pages (from-to)381-410
Number of pages30
JournalJournal of Empirical Legal Studies
Volume16
Issue number2
DOIs
StatePublished - Jun 1 2019

Fingerprint

audit
fee
liability
evidence
shareholder
opposition

All Science Journal Classification (ASJC) codes

  • Education
  • Law

Cite this

Louis, Henock ; Pearson, Thomas C. ; Robinson, Dahlia M. ; Robinson, Michael N. ; Sun, Amy X. / The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality. In: Journal of Empirical Legal Studies. 2019 ; Vol. 16, No. 2. pp. 381-410.
@article{7602dc357ffb408f9611225014b4a708,
title = "The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality",
abstract = "Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.",
author = "Henock Louis and Pearson, {Thomas C.} and Robinson, {Dahlia M.} and Robinson, {Michael N.} and Sun, {Amy X.}",
year = "2019",
month = "6",
day = "1",
doi = "10.1111/jels.12218",
language = "English (US)",
volume = "16",
pages = "381--410",
journal = "Journal of Empirical Legal Studies",
issn = "1740-1453",
publisher = "Wiley-Blackwell",
number = "2",

}

The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality. / Louis, Henock; Pearson, Thomas C.; Robinson, Dahlia M.; Robinson, Michael N.; Sun, Amy X.

In: Journal of Empirical Legal Studies, Vol. 16, No. 2, 01.06.2019, p. 381-410.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality

AU - Louis, Henock

AU - Pearson, Thomas C.

AU - Robinson, Dahlia M.

AU - Robinson, Michael N.

AU - Sun, Amy X.

PY - 2019/6/1

Y1 - 2019/6/1

N2 - Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.

AB - Regulators and shareholders generally oppose any restriction on clients' rights to sue their auditors, believing that such restrictions would impair reporting quality. However, the evidence suggests that the opposition to limitation of liability agreements (LLAs) between clients and auditors is likely unwarranted. Specifically, the evidence indicates that LLAs are beneficial to clients by lowering their audit fees. More importantly, we find no evidence that they impair financial reporting quality in general. Hence, the extant contracts limiting clients' rights to sue their auditors appear to benefit auditors and their clients without any apparent detriment to the quality of financial reporting.

UR - http://www.scopus.com/inward/record.url?scp=85065190696&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85065190696&partnerID=8YFLogxK

U2 - 10.1111/jels.12218

DO - 10.1111/jels.12218

M3 - Article

AN - SCOPUS:85065190696

VL - 16

SP - 381

EP - 410

JO - Journal of Empirical Legal Studies

JF - Journal of Empirical Legal Studies

SN - 1740-1453

IS - 2

ER -