Trials of Legal Disputes Involving Independent Auditors: Some Empirical Evidence

Abstract

This study examines the use of trials for resolving auditor legal disputes during 1960-90. I provide evidence on the percentage of cases tried to verdict, auditor success rates at trial, judgment amounts on cases decided against auditors, post-trial appeals and settlements, and final resolutions for tried cases. I also discuss auditor reputation considerations in exercising trial options. The study suggests interpretations of observed trial rates and auditor success rates given these considerations. Trial verdicts, whether by judge or jury, are assumed to reflect the merits of cases, i.e., the correct application of the law to the events that actually occurred (Alexander [1991]). Although less than 5% of civil securities actions are litigated to verdict (Alexander [1991, p. 525]), the option of trial is thought to exist in all cases. The option is critical because it means that pretrial resolutions also tend to reflect the merits of cases.' With the option of trial, litigants rationally