The Effect of Litigation Risk Increase on Big N Auditor Exits and Audit Quality in the Korean Savings Banking Industry

Abstract

This study investigates whether an increase in litigation risk results in Big N auditors leaving the industry and examines the impact of this increase on audit quality. Using a sample of Korean savings banks from 2009 to 2015, the study finds that the proportion of Big N auditors sharply decreases after a savings bank crisis, suggesting that Big N auditors are likely to reject riskier clients, while audit quality is unchanged. The results provide new evidence that an increase in litigation risk does not necessarily increase audit quality. The findings have academic and practical implications, as they suggest that policies for improving audit quality should consider auditors’ strategies in response to litigation risk.

Redressing the fundamental conflict of interest in public company audits

“…6 6 Archival research shows this joint feature (Big 4 and designated auditor) in ADS firms (see Jung & Kim, 2019). …”

Audit Quality, Climate Risk Disclosures and Ethical Guidance (eCode)

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Output Indicators of Audit Quality: A Framework Based on Literature Review

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