The revival of large consulting practices at the Big 4 and audit quality

Dain C. Donelson, Matthew Ege, Andrew J. Imdieke, Eldar Maksymov

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

The Big 4 have acquired numerous consulting firms since the late 2000s, and regulators are concerned that a focus on consulting practices could negatively affect audit quality through audit firm culture. Audit firms counter by arguing that expertise gained through consulting can improve knowledge brought to audits. Using a difference-in-differences design, restatements as an audit quality proxy, and enterprise resource planning- (non-enterprise resource planning-) related acquisitions as a proxy for audit- (non-audit-) related acquisitions, we find nuanced support for both positions, depending on acquisition type. Audit quality increases (decreases) at the local office level after the acquisition of consulting firms that provide services that relate (do not relate) to the audit. Semi-structured interviews of 17 highly-experienced audit practitioners suggest that consulting firm acquisitions positively (negatively) affect audit quality through expertise transfer (shifting the culture towards commercialism) when acquisitions are (are not) audit-related. Thus, the effect of consulting firm acquisitions on audit quality appears to depend on how closely the acquired services are related to the audit.

Original languageEnglish (US)
Article number101157
JournalAccounting, Organizations and Society
Volume87
DOIs
StatePublished - Nov 2020

Keywords

  • Audit quality
  • Consulting
  • Non-audit services
  • PCAOB

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science
  • Organizational Behavior and Human Resource Management
  • Information Systems and Management

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