Tax professionals are responsible for objectively evaluating tax authorities and evidence relevant to their application and for serving as client advocates. We predict that practice risk, i.e., exposure to monetary and nonmonetary costs of making inappropriate recommendations, will affect tax...

Statutory auditors serve as an integral device to safeguard confidence in European financial markets. The market for corporate auditing is highly concentrated. A collapse of one of the top four auditing firms could cause a severe lack in the availability of auditing services. In a 2007 Staff...

Conventional wisdom holds that an auditor's optimal response to an increase in legal exposure is to double his efforts in finding errors in his client's financial reports. This paper's main result is that in a market setting where clients shop for opinions and auditors must compete for clients,...

There are serious concerns in some Western countries that methods should be found to resolve what is commonly referred to as the auditing profession's liability crisis. A number of legislative based proposals to limit auditors' liability have been suggested. However, anxiety has been voiced...

We model a firm's investment decision, an auditor's effort-rendering behavior, audit fees, and prices of the firms under two auditor liability rules: strict liability and negligence liability. We show that an auditor's effort level is socially optimal under strict liability, while it is not...

This paper considers the key system measures which can prevent financial frauds. Financial frauds prevention is crucial part of organized economical system and it materializes through the structures of controls. System of the structures of controls is called “three lines of business...

When an auditor's effort is not observable, auditor liability becomes an important mechanism for motivating the auditor to exert an appropriate level of audit effort. However, while the presence of legal liability helps to preserve the value of an audit to investors, some aspects of the...

The scope of this paper is to demonstrate that only in case of unilateral accident a party will take efficient level of activity. In all cases of bilateral accidents there will be aòwaus a party that will take a too high level of activity. But the reason that I try to demonstrate in this work...