European evidence on the effects of audit office changes on clients' financial reporting quality

Maysam Ayoub

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: Prior research suggests that the financial reporting quality may be influenced by audit office-level characteristics. Yet, many factors are likely to influence whether within-firm office changes result in a positive or negative association with reporting quality. When clients switch to a different office within the same audit firm, they can potentially benefit from fresh perspectives and insights from the new audit team and partners. On the contrary, this transition may compromise the quality of the audit due to a decline in the team’s understanding of the client’s specific needs and the initial cost pressures required for the new team to prepare for the new assignment. Nevertheless, the ability of an audit office to provide a high-quality audit depends partly on how it relates to the network of offices in which it operates. Considering that changes in offices within the same audit firm reflect a challenge in efficiently allocating audit resources, we investigate whether there is a decline in financial reporting quality when a client changes to a different audit office within the same firm. We also examine whether teams from more connected offices are more capable of managing the transition and preserving reporting quality. Contrary to expectations, our analysis did not reveal any indication of a decline in financial reporting quality in a European context, and we did not find evidence that the adverse impact of changes in audit offices within the same firm, if any, on financial reporting quality lessens with greater network connectedness. Further, the additional testing results demonstrate that alterations in the auditor-client distance, as well as office upsizing, downsizing, upgrading, or downgrading of specialization, do not lead to a deterioration in financial reporting quality

Pages: 46 pages
Date: 2023-05
New Economics Papers: this item is included in nep-acc and nep-inv
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Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2023007

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