The emergence of second-tier auditors in the post-SOX era: An analysis of accounting conservatism

David S. Jenkins and Uma Velury

Research in Accounting Regulation, 2011, vol. 23, issue 2, 172-176

Abstract: The increased resource constraints experienced by Big-N audit firms as a result of the passage of Sarbanes-Oxley Act (SOX) contributed to the emergence of second-tier audit firms as viable alternatives to the Big N for public company clients, as suggested by the PCAOB. This study provides a comparative examination of an important property of accounting numbers, earnings conservatism, for clients of Big-N and second-tier audit firms in both the pre- and post-SOX periods. Our findings indicate that, while there is a general increase in conservatism in the post-SOX period, there is no significant difference in conservatism between clients of Big-N and second-tier auditors in either the pre- or post-SOX periods. In addition, the results show greater conservatism in the post-SOX period among clients of Big-N and second-tier firms relative to that of other (non-Big-N/non-second-tier) audit firms. Overall, the results lend support to the PCAOB’s recommendation concerning the use of second-tier auditors as a viable alternative to the Big-N and to the effectiveness of SOX in increasing reporting conservatism among clients of all auditors conducting public company audits in the post-SOX period.

Keywords: Second-tier auditors; Big-N auditors; Accounting conservatism; Financial reporting quality; Asymmetric timeliness; Sarbanes-Oxley Act (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reacre:v:23:y:2011:i:2:p:172-176

DOI: 10.1016/j.racreg.2011.06.006

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