Audit Reporting of Big 4 Versus Non-Big 4 Auditors: The Case of Ex-Andersen Clients

Kam-Wah Lai

The International Journal of Accounting, 2013, vol. 48, issue 4, 495-524

Abstract: This paper examines audit reporting of Big 4 auditors versus non-Big 4 auditors for ex-Andersen clients and other clients. It suggests that ex-Andersen clients are more risky than other clients and are able to exert more influence than other clients on non-Big 4 auditors because they are larger in size than other non-Big 4 auditees. In addition, Big 4 auditors are more risk-averse and able to withstand clients' pressure than non-Big 4 auditors. The results show that Big 4 auditors are more likely than non-Big 4 auditors to issue going-concern opinions to ex-Andersen clients or restrict the level of discretionary accruals of those clients compared with other clients. Further, ex-Andersen clients of Big 4 auditors would have had a lower likelihood of receiving going-concern opinions or higher levels of discretionary accruals had reporting practices for other clients been applied. Ex-Andersen clients of non-Big 4 auditors would have had a higher likelihood of going-concern opinions or lower levels of discretionary accruals. Hence, the suggestion to reduce the Big 4 concentration in the audit market by allowing non-Big 4 firms a larger market share should be viewed prudently. Overall, these results are consistent with the suggestion that litigation risk and client pressure are important factors in audit reporting.

Keywords: Reporting conservatism; Big 4 auditors; Arthur Andersen; Going-concern opinions; Discretionary accruals (search for similar items in EconPapers)
JEL-codes: M42 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:48:y:2013:i:4:p:495-524

DOI: 10.1016/j.intacc.2013.10.001

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