This case study sought to comparatively analyze well-publicized auditor-client lawsuits between the years 2008 and 2018. The five lawsuits were all filed following the events on the Financial Crisis of 2008. This was done as the 2008 Financial Crisis signified a turning point in many prominent financial firms and the modern day economic landscape. With focus on the Big 4 Auditing firms as the defendants, the findings of this paper will allow for further analysis into the most critical aspects of these types of lawsuits. Specifically, pertaining to the cases’ both similar and dissimilar components. The five cases analyzed in this paper found common factors pertaining to the role of bankruptcy, as well as the role of the In Pari Delicto Doctrine in the defense strategy. Upon summary, it was determined the most successful iteration of the doctrine occurred in those cases where the strategy was combined with other laws and precedents. Furthermore, it was determined the failure of the doctrine in initial court proceedings such as, the motion to dismiss and the motion for summary judgement, lead to instances of settlement. Additionally, the cases primarily involved fraudulent activities or accounting errors, and focused on the role of the auditor in the collapse of the various clients’ firms. In the case of accounting errors, cases typically ended in settlement as well. After careful analysis, it can be inferred cases involving fraudulent behavior on the part of the clients, have a substantial impact on the successful utilization of the In Pari Delicto Doctrine. In the future, the scope of this case study can be expanded beyond well-publicized lawsuits.

Auditors are required to communicate significant risks and audit strategy to the audit committee. However, the effect on perceived auditor liability of auditor disclosures to the audit committee has been ignored for the most part in the accounting literature. In an experiment, I examine how the auditor’s choice to disclose a significant risk to the audit committee affects jurors’ negligence assessments of the auditor. Secondarily, I examine whether assessments of auditor negligence vary with the auditor’s use of a specialist. I find that disclosing a risk to the audit committee reduces jurors’ negligence verdicts against the auditor. However, auditor efforts to improve audit quality through use of a specialist do not differentially affect negligence assessments, individually or interactively with disclosure choices. My results further reveal that there is no reduction of negligence assessments by disclosing risks to the audit committee if jurors do not have a pre-existing favorable view of the auditing profession and do not understand the limitations of an audit. Through mediation analysis, I show that these findings are consistent with expectations derived from psychology research examining responsibility attributions in settings with multiple causative agents, where jurors’ diffuse responsibility away from the auditor and toward the audit committee. My results contribute to practice, addressing one cost/benefit consideration related to disclosures to audit committees and the use of specialists, and to accounting research examining the legal ramifications of disclosing identified audit risks.

Accounting estimates are developed in a bottom-up fashion; subordinates generate estimates that are reviewed by managers. The anchoring heuristic suggests managers may be highly influenced by subordinates’ initial estimates. However, motivated reasoning theory predicts that reporting incentives will bias managers’ review in favor of estimates that are incentive consistent, and managers will selectively attend to information that supports their preferred conclusion, including their perceptions of the subordinate. Using experimental methods I manipulate the consistency of the subordinate estimate with management reporting incentives, and the narcissistic description of the subordinate. Consistent with motivated reasoning theory, I find that managers anchor on incentive consistent subordinate estimates, regardless of subordinate narcissism, but anchor less on incentive inconsistent subordinate estimates, especially when the estimate comes from a narcissistic subordinate. I also find evidence that managers believe narcissistic subordinates act strategically in their own self-interest, and selectively attend to this belief to adjust away from incentive inconsistent subordinate estimates, but not incentive consistent subordinate estimate. My results reveal two potential weaknesses in the management review process: susceptibility to subordinate anchors, and bias created by reporting incentives.