پاسخ به راندال لاسل: "نظام قضایی مدنی و گزارشات نگران کننده حسابرسی : توضیحات درباره تصمیم سازی حسابرس تحت عدم قطعیت نگران کننده در محیط های با ریسک کم شکایت های قانونی: شواهدی از هنگ کنگ"

In a dissent from the conclusion reached in Lam and Mensah [Lam, K, Mensah, Y.M., 2006. Auditors’ decision-making under going-concern uncertainties in low Litigation-risk environments: Evidence from Hong Kong. Journal of Accounting and Public Policy, 25 (6), 706–739], Lasalle has proposed a number of alternative plausible explanations for our findings that Hong Kong auditors issued disclaimer of opinions in a manner associated with the eventual outcome to the clients. We examine these explanations and attempt to relate them to relevant empirical evidence in the literature. We find that none of his plausible explanations is consistent with the limited empirical evidence available. Thus, we continue to believe that a high litigation-risk environment is not a necessary pre-requisite for high quality audits.

LaSalle (2006) has expressed the view that the conclusion in Lam and Mensah (2006) that “litigation-risk, even if important in high risk environments, may not be any more important than the professionalism and reputation of the auditor” is not supported by the evidence we presented in the study. His counter-arguments rest on two main premises: 1. The issue of disclaimer of opinions in severe financial distress situations is an equivocal measure of “audit quality”; 2. There are three alternative explanations for the issue of disclaimers in a low litigation-risk environment, namely (a) the gatekeeper story; (b) the herding story; and (c) the value of incumbency story. We examine below LaSalle’s counter-arguments and provide reasons why we believe the conclusion reached in Lam and Mensah (2006) is fully justified.

The debate about the pros and cons of stricter regulations and liabilities is perennial and probably will never end. In Lam and Mensah (2006), we used data from a low liability regulatory regime to show that legal liability is not the only factor determining audit quality. Regulation is, after all, not costless. The hefty burden of stricter legal liability is ultimately passed to end users. This was the motivation underlying the passage of the Private Securities Litigation Reform Act of 1995 and the Securities Litigation Uniform Standards Act of 1998, both of which were designed to reduce regulatory and legal burdens on the US economy ( Geiger and Raghunandan, 2002). Ultimately, higher regulation leads to more difficult financing conditions, lower innovation, fewer investment activities, reduced employment and higher product prices. Anecdotal evidence currently suggests that the cost of external audit services for US public companies has increased by more than 52% under the Sarbanes–Oxley Act of 2002, while mid-sized companies have reported 81% growth in audit fees.2 Furthermore, the costs of becoming a public company have reportedly increased by at least 33%.3 We do not know the exact point where greater legal liability/regulations balanced against greater audit costs will induce optimal audit quality. However, instead of relying solely on increasing litigation-risk and/or regulations (and ignoring the associated increase in audit costs), we believe that it’s time to explore other avenues. As suggested by Largay (2002), one way is to enhance professional and ethical training for accountants. Largay (2002) mentions that few accounting graduates nowadays have heard of audit failures such as Continental Vending. Courses on audit failures and on accounting ethics should be mandatory, either as part of the college-level accounting curriculum, or as a post-graduation training program by the auditing firms. We believe that ethics can be taught and learned, and that in training accountants and auditors, we should no longer just focus on how things can be done but also on how things should be done. We conclude this paper by quoting an ancient Chinese saying: “Kill a rooster to scare the monkeys.” Raising legal liability and imposing additional regulations whenever there is an accounting scandal exemplifies such an approach. Audit failures will occur, no matter how tight the regulatory environment. Outliers will occur in any reasonable statistical distribution used to model events as complex as human behavior. To limit such events, a portfolio of approaches is needed, and sole reliance on regulatory reform is bound to end in needless expense and future disappointment.