Browsing by Subject "Auditors"

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Do confidential witness allegations impact litigation outcomes for public companies and their auditors?
(2024-05) Kim, Minjae, Ph. D.; Schmidt, Jaime J.; Steven Kachelmeier; Robert Prentice; Nicholas Hallman; Dain Donelson
I investigate whether confidential witness (CW) allegations impact litigation outcomes of public company and auditor defendants in securities class action litigation. CWs are former employees of public companies who provide allegations against defendants on behalf of law firms. Practitioners perceive CW allegations to be a commonly used but controversial source of evidence. I find that CW allegations are associated with a 11% and 23% increased likelihood of settlement by public companies and auditors, respectively, and the Oster test suggests that these results are unlikely to be driven by correlated omitted variables. Allegations from CWs that served in finance / accounting or managerial roles appear more effective than the average CW allegation. The impact on auditor litigation outcomes is concentrated in allegations directed against the auditor’s clients, but not against the auditor. My findings document an economically significant determinant of litigation outcomes and show that CWs serve as an alternative private mechanism to discipline firms’ misbehavior alongside regulatory whistleblowing programs.
The determinants and consequences of big 4 lobbying positions on proposed accounting standards
(2018-11-01) Monsen, Brian Robert; McInnis, John M.; Jennings, Ross; Donelson, Dain; Werner, Timothy; Yu, Yong
Despite the considerable participation of Big 4 accounting firms in accounting standard setting, no studies provide systematic evidence on what factors shape Big 4 lobbying positions or whether their positions materially influence standards. Using textual analysis of comment letters to measure lobbying positions on FASB exposure drafts, I seek to provide such evidence. I find that Big 4 lobbying positions reflect incentives to increase fee-generating work and maintain client relationships, and that Big 4 support for fee-increasing proposals is constrained by client opposition. Big 4 lobbying positions are significantly associated with standard setting outcomes, both in isolation as well as relative to other FASB constituents, including financial statement preparers and users. My results indicate financial statement users are neither directly (via comment letter lobbying) nor indirectly (via Big 4 advocacy) influential in the comment letter phase of FASB due process.