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Has the new world order taught the big four to manage client portfolio risk? Examining extreme loss occurrences before and after Sarbanes Oxley

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  • Sellers, R. Drew
  • Fogarty, Timothy J.
  • Jadallah, Jadallah

Abstract

This paper analyzes ongoing efforts by the large public accounting firms to manage their legal liability. For this purpose, the paper focuses on extreme financial losses from the audits of U.S. publicly traded clients incurred by Big Four firms. The possibility that this form of legal liability has changed as a result of the new world order brought to the accounting profession by the Sarbanes-Oxley Act of 2002 (SOX) is the paper's main premise. This paper finds a major decline in the severity of these cases. However, the results show that firms have not necessarily improved the management of this risk. The drivers of extreme legal liability continue to be client continuance decisions and larger clients.

Suggested Citation

  • Sellers, R. Drew & Fogarty, Timothy J. & Jadallah, Jadallah, 2020. "Has the new world order taught the big four to manage client portfolio risk? Examining extreme loss occurrences before and after Sarbanes Oxley," Advances in accounting, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:advacc:v:51:y:2020:i:c:s0882611020300687
    DOI: 10.1016/j.adiac.2020.100498
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    References listed on IDEAS

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