Title: Audit standards and auditor liability: a theoretical model
Authors: Willekens, Marleen ×
Steele, A
Miltz, D #
Issue Date: 1996
Series Title: Accounting and Business Research vol:26 issue:3 pages:249-264
Abstract: A paper provides an analysis of the effects of uncertainty about auditor negligence on the produced level of audit quality and on audit fees. The auditor subject to a negligence rule will produce too low or too high an audit quality level, as compared to the socially optimal level. It is shown that uncertainty about the legal standard of due audit quality is fundamental to understanding audit quality supplied. This uncertainty is the explicator of an insurance component in audit fees. A surprising insight is that a large uncertainty about the legal standard of care can reduce rather than increase the quality of audit work supplied and increase the insurance component. Relying on insurance premiums can be more effective than direct expenditure in reducing risk. The effect of the imposition of ex ante precise audit quality standards, in combination with an uncertain negligence rule, is discussed. If the legal standard of care were clear, there would be no role for audit standards
ISSN: 0001-4788
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center Accountancy, Leuven
× corresponding author
# (joint) last author

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