Auditors' Responses to Organized Labor in Client Firms

Yu Kit, Simon FUNG, Woo Jong LEE, Bin SRINIDHI, Lixin, Nancy SU

Research output: Book Chapters | Papers in Conference ProceedingsConference paper (refereed)Researchpeer-review

Abstract

Using a sample of US firms for the period 2000-2011, we examine whether organized labor in audit client firms affects their financial statement quality and auditor decisions such as audit fees and going concern qualifications. We do not find evidence supporting the association between unionization and financial statement quality metrics such as future accounting restatements, discretionary accruals and the likelihood of reporting small profits. However, we find that labor unionization is associated with higher audit fees and higher likelihood of goingconcern qualifications but shorter audit report lags. Because the auditor’s response seems to be unrelated to inherent earnings quality differences, these findings support the contention that the auditors mitigate the higher litigation risk in unionized firms by giving more going concern qualifications (thereby deflecting the legal threat away) and by charging higher audit fees to compensate for the additional risk.
Original languageEnglish
Title of host publication한국회계학회 학술발표논문집
Subtitle of host publicationKorea Accounting Institute Conference
PublisherKorean Accounting Society
Pages368-412
Volume1 (2015)
Edition2015
Publication statusPublished - Jun 2015
Externally publishedYes

Fingerprint

Auditors
Organized labor
Audit fees
Qualification
Going concern
Financial statements
Unionization
Audit reports
Labor
Threat
Discretionary accruals
Litigation risk
Profit
Accounting restatements
Earnings quality
Audit
Lag
Quality metrics

Keywords

  • Audit Fees
  • Audit Report Lag
  • Going-Concern Audit Opinions
  • Labor Union

Cite this

FUNG, Y. K. S., LEE, W. J., SRINIDHI, B., & SU, L. N. (2015). Auditors' Responses to Organized Labor in Client Firms. In 한국회계학회 학술발표논문집: Korea Accounting Institute Conference (2015 ed., Vol. 1 (2015), pp. 368-412). Korean Accounting Society.
FUNG, Yu Kit, Simon ; LEE, Woo Jong ; SRINIDHI, Bin ; SU, Lixin, Nancy. / Auditors' Responses to Organized Labor in Client Firms. 한국회계학회 학술발표논문집: Korea Accounting Institute Conference. Vol. 1 (2015) 2015. ed. Korean Accounting Society, 2015. pp. 368-412
@inproceedings{bc40a9b1877a406099ac9c3c7831cec6,
title = "Auditors' Responses to Organized Labor in Client Firms",
abstract = "Using a sample of US firms for the period 2000-2011, we examine whether organized labor in audit client firms affects their financial statement quality and auditor decisions such as audit fees and going concern qualifications. We do not find evidence supporting the association between unionization and financial statement quality metrics such as future accounting restatements, discretionary accruals and the likelihood of reporting small profits. However, we find that labor unionization is associated with higher audit fees and higher likelihood of goingconcern qualifications but shorter audit report lags. Because the auditor’s response seems to be unrelated to inherent earnings quality differences, these findings support the contention that the auditors mitigate the higher litigation risk in unionized firms by giving more going concern qualifications (thereby deflecting the legal threat away) and by charging higher audit fees to compensate for the additional risk.",
keywords = "Audit Fees, Audit Report Lag, Going-Concern Audit Opinions, Labor Union",
author = "FUNG, {Yu Kit, Simon} and LEE, {Woo Jong} and Bin SRINIDHI and SU, {Lixin, Nancy}",
year = "2015",
month = "6",
language = "English",
volume = "1 (2015)",
pages = "368--412",
booktitle = "한국회계학회 학술발표논문집",
publisher = "Korean Accounting Society",
edition = "2015",

}

FUNG, YKS, LEE, WJ, SRINIDHI, B & SU, LN 2015, Auditors' Responses to Organized Labor in Client Firms. in 한국회계학회 학술발표논문집: Korea Accounting Institute Conference. 2015 edn, vol. 1 (2015), Korean Accounting Society, pp. 368-412.

Auditors' Responses to Organized Labor in Client Firms. / FUNG, Yu Kit, Simon; LEE, Woo Jong; SRINIDHI, Bin; SU, Lixin, Nancy.

한국회계학회 학술발표논문집: Korea Accounting Institute Conference. Vol. 1 (2015) 2015. ed. Korean Accounting Society, 2015. p. 368-412.

Research output: Book Chapters | Papers in Conference ProceedingsConference paper (refereed)Researchpeer-review

TY - GEN

T1 - Auditors' Responses to Organized Labor in Client Firms

AU - FUNG, Yu Kit, Simon

AU - LEE, Woo Jong

AU - SRINIDHI, Bin

AU - SU, Lixin, Nancy

PY - 2015/6

Y1 - 2015/6

N2 - Using a sample of US firms for the period 2000-2011, we examine whether organized labor in audit client firms affects their financial statement quality and auditor decisions such as audit fees and going concern qualifications. We do not find evidence supporting the association between unionization and financial statement quality metrics such as future accounting restatements, discretionary accruals and the likelihood of reporting small profits. However, we find that labor unionization is associated with higher audit fees and higher likelihood of goingconcern qualifications but shorter audit report lags. Because the auditor’s response seems to be unrelated to inherent earnings quality differences, these findings support the contention that the auditors mitigate the higher litigation risk in unionized firms by giving more going concern qualifications (thereby deflecting the legal threat away) and by charging higher audit fees to compensate for the additional risk.

AB - Using a sample of US firms for the period 2000-2011, we examine whether organized labor in audit client firms affects their financial statement quality and auditor decisions such as audit fees and going concern qualifications. We do not find evidence supporting the association between unionization and financial statement quality metrics such as future accounting restatements, discretionary accruals and the likelihood of reporting small profits. However, we find that labor unionization is associated with higher audit fees and higher likelihood of goingconcern qualifications but shorter audit report lags. Because the auditor’s response seems to be unrelated to inherent earnings quality differences, these findings support the contention that the auditors mitigate the higher litigation risk in unionized firms by giving more going concern qualifications (thereby deflecting the legal threat away) and by charging higher audit fees to compensate for the additional risk.

KW - Audit Fees

KW - Audit Report Lag

KW - Going-Concern Audit Opinions

KW - Labor Union

UR - http://commons.ln.edu.hk/sw_master/5283

M3 - Conference paper (refereed)

VL - 1 (2015)

SP - 368

EP - 412

BT - 한국회계학회 학술발표논문집

PB - Korean Accounting Society

ER -

FUNG YKS, LEE WJ, SRINIDHI B, SU LN. Auditors' Responses to Organized Labor in Client Firms. In 한국회계학회 학술발표논문집: Korea Accounting Institute Conference. 2015 ed. Vol. 1 (2015). Korean Accounting Society. 2015. p. 368-412