이 논문은 감사인에게 부과하는 손해배상 의무가 감사의 품질과 기업의 생산 활동에 미치는 영향을 평가하고, 바람직한 손해배상 금액을 책정하는 방법을 고찰한다. 손해배상 방식에는 과실 책임체제(negligence regime), 무과실 책임체제(misstatement regime) 등이 있다. 이 논문은 그 중 과실 책임체제를 연구한다. 가장 중요한 결과는 다음과 같다. 법원은 회계 감사인이 부실한 감사로 초래한 사회적 손실을 그가 배상할 확률로 나누어 얻어지는 액수를 손해배상 금액으로 부과하면 사회적 공익을 극대화 할 수 있다. 미국 법원은 징벌적 배상액(punitive damage)으로 원고의 실제 손실액에 비해 최고 세배까지도 부과한다. 이는 법원의 판단으로는 투자자들이 소를 제기하고 승소하는 확률이 최소한 1/3은 된다는 것으로 해석할 수 있다. 다음, 감사의 품질이 너무 낮아도 안되지만 지나치게 높아도 안 된다. 감사품질이 지나치게 낮으면 감사가 쓸모 없어지니, 이 결과는 상식적이다. 하지만, 감사 품질이 너무 높아도 안 된다는 결과는 의외다. 만약 투자자들이 보기에 감사 품질이 매우 높으면 승소할 가능성이 희박하므로, 그들은 소를 제기하지 않을 것이다. 그렇다면, 회계 감사인은 감사 품질을 일정한 상한선 아래로 낮추어 감사 비용을 절감할 것이다. 마지막으로 중요한 결과로 감사 수수료는 감사에 투입된 실제 비용에 손해배상 금액의 기대값을 합한 금액이다. 이 결과는 매우 상식적 이다.

Auditors have argued that legal damage awards are excessive, and advocated legal reform. Legal liability is imposed on auditors because the users of audited financial statements cannot observe audit quality. This paper will help policy makers assess the tradeoffs determining the socially optimal audit quality and design legal liability damages for auditors. I construct a model where the audit report influences the client firm's production decisions at the interim date, and the costs and benefits of audit quality are explicit. The audit technology is such that the auditor's report could be in error even without a deliberate attempt to mislead. However, the probability of audit error can be decreased by putting more resources into the audit. I focus my attention on a ‘negligence’ regime. I derive the optimal audit quality, the optimal damage award, and the equilibrium audit fee. My most significant finding is that the socially optimal size of the legal damage is social loss from a misleading audit report divided by the probability of the investors' winning the damage award. The court has been awarding damages up to three times the actual loss if the defendant intentionally committed wrong doings. This practice is quite consistent with this finding. Another interesting finding is that the optimal audit quality lies between the upper and the lower bounds. It is quite expected that audit quality should be sufficiently high to maintain social demand for audit services. The upper bound is a surprise probably because audit quality in practice never rises above the upper bound. I also find that the equilibrium audit fee consists of the actual audit costs and the auditor's expected legal damages. This result is consistent with literature in this area.

Auditors have argued that legal damage awards are excessive, and advocated legal reform. Legal liability is imposed on auditors because the users of audited financial statements cannot observe audit quality. This paper will help policy makers assess the tradeoffs determining the socially optimal audit quality and design legal liability damages for auditors. I construct a model where the audit report influences the client firm's production decisions at the interim date, and the costs and benefits of audit quality are explicit. The audit technology is such that the auditor's report could be in error even without a deliberate attempt to mislead. However, the probability of audit error can be decreased by putting more resources into the audit. I focus my attention on a ‘negligence’ regime. I derive the optimal audit quality, the optimal damage award, and the equilibrium audit fee. My most significant finding is that the socially optimal size of the legal damage is social loss from a misleading audit report divided by the probability of the investors' winning the damage award. The court has been awarding damages up to three times the actual loss if the defendant intentionally committed wrong doings. This practice is quite consistent with this finding. Another interesting finding is that the optimal audit quality lies between the upper and the lower bounds. It is quite expected that audit quality should be sufficiently high to maintain social demand for audit services. The upper bound is a surprise probably because audit quality in practice never rises above the upper bound. I also find that the equilibrium audit fee consists of the actual audit costs and the auditor's expected legal damages. This result is consistent with literature in this area.

audit quality, legal damages, negligence regime, audit fee, investment.