Firm's growth potential and auditor litigation risk

This study provides a better theoretical understanding of the reasons why audit failure may cause audit litigation influencing the growth potential for future earnings. This study examines whether a higher growth potential of future earnings for a firm's performance before the audit failure results in audit litigation. This study also investigates whether market variables such as variability of return can be served as useful indicators for measuring the level of audit risk. In addition, this study examines the relationship between the tenure of an independent auditor and the audit quality. The results may suggest practical implications for an external auditor. Also, the variables employed in this study are helpful for auditors in determining their level of business risk before an audit failure.