Organizational Climates in Non-Big 4 vis-à-vis Big 4 Accounting Firms

Hux, Candice; Zimmerman, Ally

doi:10.2139/ssrn.3694012

Cited by 2 publications

(1 citation statement)

References 61 publications

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“…For example, the results in DeFond and Subramanyam (1998) suggest that companies dismiss their auditors for being overly conservative, and engage new auditors that are less conservative than the predecessor. Although the arguments above suggest that audit efficiency may come at the expense of audit quality, some audit firms (or audit offices) serve a smaller number of publicly traded companies that release earnings and have less extensive consultation processes (Hux and Zimmerman 2020). This could potentially free up resources and time to meet client demands for timeliness without compromising audit quality.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Earnings announcement delays and implications for the auditor-client relationship

et al. 2021

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We examine whether delays in the expected release of annual earnings have implications for the future auditor-client relationship. Managers have strong incentives to release earnings on schedule, and auditors play an important role in helping their clients avoid costly earnings announcement delays. We find an increased likelihood of subsequent auditor-client realignments after earnings announcement delays. We further find that clients changing auditors realign with audit firms that better meet their earnings announcement timing demands, without finding evidence of a significant compromise in the reliability of the financial statement numbers in the earnings announcement. Our results help inform regulatory concerns about audit market concentration and how audit firm turnover has the potential to impact the auditor-client dynamic. While it is possible that auditor turnover could lead to a power imbalance where clients gain leverage in the relationship, our results suggest otherwise. JEL classifications M41 . M42

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Section: Hypotheses Developmentmentioning

confidence: 99%

Earnings announcement delays and implications for the auditor-client relationship

et al. 2021

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Audit quality and COVID-19 restrictions

Gong

Jin

et al. 2022

MAJ

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Purpose This study aims to examine declines in audit quality after the COVID-19 travel restrictions/stay-at-home orders were issued in the USA in early 2020. Design/methodology/approach Taking advantage of variation in the dates of stay-at-home orders issued by different US states, this study identifies engagements that were significantly affected by the lock down orders. Findings The results suggest that engagements affected by the restrictions produced lower audit quality, as measured through restatements and discretionary accruals, relative to those completed before COVID-19 travel restrictions/stay-at-home orders. Further analysis reveals that this decrease in audit quality was attributable to firms with high inventory relative to assets, high R&D expenses relative to assets and non-Big 4 auditors. Practical implications This study finds that the restrictions on physical and on-site interaction caused auditors to universally struggle with resource/judgment-intensive accounts such as inventory and R&D expenditures. The results suggest that while Big 4 auditors managed to maintain their status quo level of audit quality following COVID-19 restrictions, non-Big 4 auditors were unable to overcome the challenges of an online work environment and their audit quality declined. Originality/value To the best of the authors’ knowledge, this paper is the first to empirically examine changes in audit quality as a response to a substantial change in auditors’ working environment due to the global health crisis. As work-from-home becomes more prevalent in audit firms, the results suggest that, on average, this move does diminish audit quality.

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Organizational Climates in Non-Big 4 vis-à-vis Big 4 Accounting Firms

Cited by 2 publications

References 61 publications

Earnings announcement delays and implications for the auditor-client relationship

Earnings announcement delays and implications for the auditor-client relationship

Audit quality and COVID-19 restrictions

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