Business, Management and Accounting
3 years ago

Financial distress and auditor leniency increase risk of audit failure

SSRN Electronic Journal
Predicting Audit Failure: Evidence From Auditing Enforcement Releases
Cristina de Fuentes Barberá, Rubén Porcuna Enguix

Paper Summary

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The study looked at why audits fail and how to prevent it. They analyzed cases in Spain from 2002 to 2013. They found that audit failure is more likely when a company is in financial trouble, the auditor allows shady accounting practices, and when an individual signs the audit report. Longer auditor tenure can also increase the risk of audit failure, especially for individual auditors. Big companies are more likely to have audit failures because audit firms care more about their reputation than losing money from clients.