The revival of large consulting practices at the Big 4 and audit quality

Dain Donelson (), Matthew Ege, Andrew J. Imdieke and Eldar Maksymov

Accounting, Organizations and Society, 2020, vol. 87, issue C

Abstract: The Big 4 have acquired numerous consulting firms since the late 2000s, and regulators are concerned that a focus on consulting practices could negatively affect audit quality through audit firm culture. Audit firms counter by arguing that expertise gained through consulting can improve knowledge brought to audits. Using a difference-in-differences design, restatements as an audit quality proxy, and enterprise resource planning- (non-enterprise resource planning-) related acquisitions as a proxy for audit- (non-audit-) related acquisitions, we find nuanced support for both positions, depending on acquisition type. Audit quality increases (decreases) at the local office level after the acquisition of consulting firms that provide services that relate (do not relate) to the audit. Semi-structured interviews of 17 highly-experienced audit practitioners suggest that consulting firm acquisitions positively (negatively) affect audit quality through expertise transfer (shifting the culture towards commercialism) when acquisitions are (are not) audit-related. Thus, the effect of consulting firm acquisitions on audit quality appears to depend on how closely the acquired services are related to the audit.

Keywords: Audit quality; Consulting; PCAOB; Non-audit services (search for similar items in EconPapers)
JEL-codes: M40 M42 M49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:aosoci:v:87:y:2020:i:c:s0361368218301351

DOI: 10.1016/j.aos.2020.101157

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