Implications of Auditor Characteristics and Directors’ and Officers’ Liability Insurance for Going-Concern Audit Opinions: Evidence from Taiwan

Hsiang-Tsai Chiang,Li-Jen He,Shu-Lin Lin

doi:10.5539/ibr.v8n5p130

Abstract

This study explores the association among auditor characteristics, directors’ and officers’ (D&O) insurance, and auditors’ intention to issue going-concern opinions. For the insured decision, the results show that clients of auditors with greater market shares, better reputation (Big 4), and those that had been punished had higher D&O insurance coverage. For the results of audit opinion, the results show that the industry-specific experience of auditors and audit firm size are significantly negatively associated with the issuing of going-concern opinion. It is consistent with our expectations that since Big 4 auditors may share more litigation risk and possess more loss coverage of audit failure of D&O insurance, the effects of D&O insurance on auditors’ intention of issuing going-concern opinions are more significant for Big 4 auditors.

Highlights

This study explores the association among company directors’ and officers’ (D&O) insurance, auditor characteristics and audit opinion
The results of this study show that, compared to those with D&O insurance, companies without D&O insurance had better corporate governance mechanisms
There is a complementary relationship between purchasing D&O insurance, strengthening corporate governance mechanisms, and engaging with high-quality auditors based on the cost control for overall corporate governance investment

Summary

Introduction

This study explores the association among company D&O insurance, auditor characteristics and audit opinion. Officers, board of directors, and auditors are demonstrated to play most important roles in governance mechanisms. Since all them three are required to joint and several liabilities with companies, to understand the possible association between director and officer insurance (here after, D&O insurance) and auditors’ behavior should be interesting and important. While prior studies have widely discussed the association between D&O insurance and corporate governance (e.g., Holderness, 1990; Core, 1997; O’Sullivan, 2002; Redington, 2005), rare of them has explored this issue by focusing on the aspect of auditor as we know. This study explores this issue by examining the association among company D&O insurance, auditor characteristics and audit opinion

Methods

Results

Conclusion