[Decisions about a subordinate's behavior are among the most important control problems facing audit managers and partners. Green and Mitchell [1979] apply attribution theory to examine supervisors' decisions made following a subordinate's behavior. Green and Mitchell argue that an individual's causal attributions regarding a subordinate's behavior serve as mediators between the behavior of the subordinate and the action responses of the evaluator. This paper reports the results of a study that examines the attribution judgments and responses made by auditors following an incidence of an audit senior's poor performance. Employee work history and client history each significantly affect the attribution judgments made by auditors. Also, the attribution judgments were associated significantly with the recommended responses of auditors. Additional analyses showed that the association was higher for internal attributions and responses than for external attributions and responses.]

Decisions about a subordinate's behavior are among the most important control problems facing audit managers and partners. Green and Mitchell [1979] apply attribution theory to examine supervisors' decisions made following a subordinate's behavior. Green and Mitchell argue that an individual's causal attributions regarding a subordinate's behavior serve as mediators between the behavior of the subordinate and the action responses of the evaluator. This paper reports the results of a study that examines the attribution judgments and responses made by auditors following an incidence of an audit senior's poor performance. Employee work history and client history each significantly affect the attribution judgments made by auditors. Also, the attribution judgments were associated significantly with the recommended responses of auditors. Additional analyses showed that the association was higher for internal attributions and responses than for external attributions and responses.

Audit researchers have a long-standing interest in understanding whether issuing a going concern report to financially stressed clients protects auditors from litigation. An endogeneity issue arises, in that litigation risk affects the going concern decision and the going concern decision impacts auditor litigation risk. Using a simultaneous equations approach, we find a significant positive association between auditors' ex ante litigation risk and going concern reporting. By applying simultaneous equations, we also find a significant negative association between going concern reporting and auditor litigation, suggesting that auditors deter lawsuits by issuing going concern reports to their financially stressed clients. Our research further provides a more rigorous analysis of the relation between going concern reporting and lawsuit outcomes in the form of auditor litigation dismissals, small settlement amounts, and large settlement amounts. Our results indicate that when auditors are named in lawsuits, having issued a going concern report reduces the likelihood of large financial settlements. Data Availability: The data used in this study are publicly available through sources identified in the study.

Research documents that firms shift operating expenses into income-decreasing, but not income-increasing, discontinued operations. We argue that valuation considerations explain this asymmetric result, as acquirers are likely to value the earnings of income-increasing discontinued operations more highly than the earnings of income-decreasing discontinued operations. Using a large sample of hand-collected data, we show that pre-tax earnings and operating expenses are significantly more value-relevant for income-increasing discontinued operations, supporting our economic explanation for why firms do not shift operating expenses into income-increasing discontinued operations. Additional analysis shows that in situations where managers are constrained from shifting operating expenses due to valuation concerns, they shift tax expense (an expense that is less value-relevant) from continuing operations into income-increasing discontinued operations. Overall, we conclude that valuation considerations constrain firms from shifting operating expenses into income-increasing discontinued operations, but do not constrain firms shifting tax expenses.