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The impact of Big 4 consulting on audit reporting lag and restatements

Michele D. Meckfessel and Drew Sellers

Managerial Auditing Journal, 2017, vol. 32, issue 1, 19-49

Abstract: Purpose - This paper responds to concerns raised by the Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB) and scholars over the rapid growth of Big 4 consulting practices. This paper aims to explores the question: Does the regrowth of sizable consulting practices by the Big 4 influence audit reporting lag and restatement rates? Design/methodology/approach - A population of the SEC-registered US audit clients of the Big 4 was used in this study. Longitudinal data on Big 4 audit clients from 2000 through 2009 were analyzed to determine the impact of consulting practice size on the clients’ audit reporting lag and restatement rate. Findings - This paper finds that consulting practice size has a positive and statistically significant influence on audit reporting lag and restatement rate. The results are robust to alternative specifications of the sample and controlling for the level of non-audit services provided to audit clients. Practical implications - The findings contribute to the discussion of the scope-of-services issue. They provide empirical support for Zeff’s (2003) and Wyatt’s (2004) intuition that the loss of Big 4 professional focus – not simply conflicts of interests – is a major factor affecting the audit quality. Originality/value - The uniqueness of this paper is in how it counts restatements. Each year this paper counts that annual financial statements are restated as opposed to each disclosure of a restatement. This paper’s contribution is to examine the association between the regrowth of Big 4 accounting firm consulting practices with audit reporting lag and restatements.

Keywords: Audit quality; Consulting; Audit reporting lag; Restatements; Scope-of-services (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-02-2016-1321

DOI: 10.1108/MAJ-02-2016-1321

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