JOURNAL OF ACCOUNTING AND FINANCE
An Investigation of the Change in the Likelihood of Auditor
Litigation due to Fraud in the Post-SOX Section 404 Era
Author(s): Ifeoma A. Udeh, Ruth W. Epps
Citation: Ifeoma A. Udeh, Ruth W. Epps, (2013) "An Investigation of the Change in the Likelihood of Auditor Litigation due to Fraud in the Post-SOX Section 404 Era," Journal of Accounting and Finance, Vol. 13, Iss. 6, pp. 118 - 133
Article Type: Research paper
Publisher: North American Business Press
Using 629 observations of firms with frauds we investigate the change in auditor litigation in the Post-
SOX 404 era. The likelihood of fraud heightens when internal controls are inadequate or non-existent.
Failure to detect timely financial statement fraud exposes auditors to litigations since regulators may
attribute the failure to a lack of due care. We find the probability of auditor litigation due to fraud
increases in the Post-SOX 404 era. Interestingly, we find no evidence of further increase in auditor
litigation when misappropriation of assets also occurs. The results suggest an enhanced enforcement of
accountability by the SEC.