Different states have different policies on who can sue an auditor. Auditors who are based in states where they are more at risk for litigation, due to state regulations, may see themselves at a disadvantage. However, higher auditor litigation risk is bringing a strong financial benefit to the clients, Barbara Su says.
Su and her coauthors uncovered that, due to the added pressure and risk of potential lawsuits, auditors produce higher quality audit and financial reporting information for their clients. This research identifies a positive effect of higher auditor litigation risk on firms’ access to debt capital.