An examination of the effects of type of engagement, materiality and structure on CPA consulting engagements with audit clients

D. Jordan Lowe, Kurt Pany

Research output: Contribution to journalArticle

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CPA firms position themselves as providers of comprehensive professional services. In some cases, they have found it necessary to co-contract with non-CPA firms in order to provide these specialized services. The increase in such arrangements raises new questions and concerns regarding their propriety when performed with audit clients. Although a large research contingent has focused on consulting-related independence problems, research efforts have neglected an area rapidly growing in importance - the propriety of CPA firms performing third party consulting engagements with their audit clients. This research assesses financial statement users' perceptions of auditor independence and financial statement reliability, as well as investment decisions when a CPA firm has performed consulting engagements with that audit client, as contrasted for that client. The objective is to test financial statement users' reactions to the existence and type of business relationship between CPA firms and their audit clients, as well as the effects of the materiality of the engagement and the degree of staff separation involved in the provision of such services. Results indicate that the existence and type of a business relationship between the CPA firm and audit client did not affect financial statement users' perceptions or decisions when the business relationship was of an immaterial nature. However, the materiality of the business relationship and the degree of staff separation had a significant impact.

Original languageEnglish (US)
Pages (from-to)32-51
Number of pages20
JournalAccounting Horizons
Issue number4
StatePublished - Dec 1 1996


ASJC Scopus subject areas

  • Accounting

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