Work

After Enron: Auditor Conservatism and Ex-Andersen Clients

Year: 2005

Type: preprint

Abstract: This study examines whether after Arthur Andersen's demise, successor auditors required more conservative accounting for their ex-Andersen clients in order to minimize litigation risk. We use unadjusted and performance adjusted measures of abnormal accruals, and we examine the level of and changes in the abnormal accruals of ex-Andersen clients in 2002 relative to a control sample of clients that were audited by a Big 4 auditor in 2001 and 2002. We conduct univariate and multivariate tests. In our multivariate tests, we control for other factors that may affect litigation risk cross-sectionally. Our results indicate that the ex-Andersen clients had lower levels of and more negative decreases in abnormal accruals in 2002. This is consistent with auditor conservatism and suggests the successor auditors viewed an Andersen audit as a unique source of litigation risk.

Source: SSRN Electronic Journal

Authors: Steven F. Cahan, Wei Zhang

Institutions: University of Auckland, University at Albany, State University of New York

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

OpenAlex ID: W3122908404

Cites: 12

Cited by: 164

Related to: 10