Litigation poses a significant business risk for auditors. We argue that auditors learn from other auditors' litigation events and examine the consequences of such events for future accounting misstatements. Using a hand-collected sample of auditor litigation events, we find a significant...

Litigation poses a significant business risk for auditors. We argue that litigation events involving other auditors' deter audit firms from providing low quality audits. We find a significant subsequent decrease in the misstatement frequency of financial reports in within-industry audits...