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Author:Simunic, D. A.
Stein, M. T.
Title:The impact of litigation risk on audit pricing: A review of the economics and the evidence
Journal:Auditing: A Journal of Practice and Theory
1996 : VOL. 15:SUPPL., p. 119-134
Index terms:AUDITING
Abstract:This paper investigates the relationship between litigation risk and audit pricing, and the main question is: are audit fees adequate to compensate auditors for litigation risk? The answer is essential in assessing the implications and severity of the liability crisis in auditing. The paper presents an economic analysis of audit pricing, and a review and reinterpretation of the audit pricing related empirical literature. The results show that increased litigation is likely to result in a demand displacement from high-quality to low-quality auditors. Audit fees reflect variations in litigation risk and there is evidence of the predicted demand displacement.
SCIMA record nr: 160831
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