This paper examines auditor liability rules under imperfect information,costly litigation and risk averse auditors. A negligence rulefails in such a setting, because in equilibrium auditors will deviatewith positive probability from any given standard. It is shown thatstrict liability...

Our article integrates the manager’s care in the literature on auditor’s liability. With unobservable efforts, we face a double moral hazard setting. It is well-known that efficient liability rules without punitive damages do not exist under these circumstances. However, we show that the...