This study examines whether certain types of financial reporting fraud result in a higher likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect commonly occurring frauds of those that stem from fictitious transactions. We examine companies with SEC Accounting and Auditing Enforcement Releases and designate whether each fraud present in their financial statements in common and/ or arises from fictitious transactions. We then examine whether these types of fraud are related to auditor litigation in analyses that control for various client, auditor and case characteristics. Our results provide some support for our two primary hypotheses - auditors are more likely to be sued when the financial statement frauds are of a common variety or when the frauds arise from fictitious transactions.

[This study examines whether certain types of financial reporting fraud result in a higher likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect commonly occurring frauds or those that stem from fictitious transactions. We examine companies with SEC Accounting and Auditing Enforcement Releases and designate whether each fraud present in their financial statements is common and/or arises from fictitious transactions. We then examine whether these types of fraud are related to auditor litigation in analyses that control for various client, auditor and case characteristics. Our results provide some support for our two primary hypotheses-auditors are more likely to be sued when the financial statement frauds are of a common variety or when the frauds arise from fictitious transactions.]

The accuracy of sell-side analysts' forecast revisions is related to a number of factors, including characteristics of the analyst and the age of the forecast. In this study we examine whether there are differences in how sophisticated and unsophisticated investors use these factors to predict the relative accuracy of forecast revisions. We adapt the lens model methodological approach from the judgment and decision-making literature to investigate these differences in an archival setting. Our results suggest that sophisticated investors have greater knowledge overall about the relation of the factors to forecast accuracy. Further, our evidence is consistent with sophisticated investors relying more on the specific factors that provide the most benefits (relative to their costs) for predicting relative forecast accuracy.