Auditors' response to organized labor in client firms
Labor Union, Audit Fees, Going-Concern Audit Opinions, Audit Report Lag
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.
Nancy Su acknowledges the financial support from The Hong Kong Polytechnic University (Grant #: G-UA1A).
Fung, S. Y. K., Lee, W.-J., Srinidhi, B., & Su, L. N. (2015). Auditors' response to organized labor in client firms. 한국회계학회 학술발표논문집, 2015, 312-367.