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)

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

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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.