The Contagion Effect of Low-Quality Audits

• 成果类型: Article
• 署名作者: Francis, Jere R.; Michas, Paul N.
• 署名单位: University of Missouri System; University of Missouri Columbia; University of Arizona
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50322
• 发表日期: 2013
• 页码: 521-552
• 关键词: industry expertise; nonaudit services; office size; conservatism; management; Clients

摘要

We investigate if the existence of low-quality audits in an auditor office indicates the presence of a contagion effect on the quality of other (concurrent) audits conducted by the office. A low-quality audit is defined as the presence of one or more clients with overstated earnings that were subsequently corrected by a downward restatement. We document that the quality of audited earnings (abnormal accruals) is lower for clients in these office-years (when the misreporting occurred) compared to a control sample of office-years with no restatements. This effect lasts for up to five subsequent years, indicating that audit firms do not immediately rectify the problems that caused contagion. We also find that an office-year with client misreporting is likely to have subsequent (new) client restatements over the next five fiscal years. Overall, the evidence suggests that certain auditor offices have systematic audit-quality problems and that these problems persist over time.