Did the 2005 deferred prosecution agreement adversely impact KPMG’s audit practice?

Matthew Baugh, Jeff P. Boone, Inder K. Khurana, K. K. Raman

Research output: Contribution to journalArticle

Abstract

We examine the consequences of misconduct in a Big 4 firm’s nonaudit practice for its audit practice. Specifically, we examine whether KPMG’s audit practice suffered a loss of audit fees and clients and/or a decline in factual audit quality following the 2005 deferred prosecution agreement (DPA) with the Department of Justice for marketing questionable tax shelters. We find little evidence that the DPA adversely impacted KPMG’s audit practice by way of either audit fees or the likelihood of client gains/losses, suggesting little or no harm to KPMG’s audit reputation. We also find that the DPA had no effect on the firm’s factual audit quality, even for those audit clients that dropped KPMG as their tax service provider. Collectively, our findings suggest that there was no spillover effect from the DPA to KPMG’s audit practice.

Original languageEnglish (US)
Pages (from-to)77-102
Number of pages26
JournalAuditing
Volume38
Issue number1
DOIs
StatePublished - Feb 1 2019
Externally publishedYes

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Audit
Audit fees
Audit quality
Tax
Spillover effects
Tax shelters
Marketing
Service provider
Justice
Big 4

Keywords

  • Audit fees
  • Audit quality
  • Big 4 firms
  • Client gains/losses
  • DOJ/KPMG deferred prosecution agreement
  • Reputational loss

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Did the 2005 deferred prosecution agreement adversely impact KPMG’s audit practice? / Baugh, Matthew; Boone, Jeff P.; Khurana, Inder K.; Raman, K. K.

In: Auditing, Vol. 38, No. 1, 01.02.2019, p. 77-102.

Research output: Contribution to journalArticle

Baugh, Matthew ; Boone, Jeff P. ; Khurana, Inder K. ; Raman, K. K. / Did the 2005 deferred prosecution agreement adversely impact KPMG’s audit practice?. In: Auditing. 2019 ; Vol. 38, No. 1. pp. 77-102.
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