AUDITOR RESIGNATIONS, LITIGATION RISK AND LITIGATION EXPERIENCE

Accounting firms claim that the risk of costly litigation leads to resignations from high-risk clients, and that these resignations represent an economic inefficiency. This study examines the association between resignations, dismissals and litigation in the computer industry from 1988–1995. Resignations and dismissals appear to be similar, suggesting some dismissals are implicit resignations. Results support a relationship between risk and resignations. Since some characteristics of auditor litigation risk are also characteristic of unprofitable audit engagements, the analysis incorporates the actual litigation experience of sample companies to provide insights into claims of inefficiencies surrounding the switches.