Doctor of Philosophy (PhD)
This paper examines whether ethical violations committed by an audit partner and the public release of the resulting PCAOB disciplinary order affects the associated audit firms’ switching risk, audit fees and audit quality relative to other comparable audit firms. I examine the effects of ethical violations on audit firms affiliated with a sanctioned auditor (also referred to as affiliated audit firm or sanctioned auditor) at the city (office), MSA, state, regional, and national (firm) level in order to determine if there is a spill-over effect. My findings suggest that at no level in my analysis did the public disclosure of the PCAOB sanction have a significant effect on sanctioned auditors losing or gaining clients. Furthermore, results indicate that there is no significant association between having a certified public accountant (CPA) serve on the audit committee and an affiliated audit firm’s ability to retain clients or attract new clients. In regards to audit fees, findings suggest that audit fees were affected by the PCAOB sanction in that sanctioned auditors experienced audit fee growth after the sanction was made public. This result is consistent across all samples for all tests with the exception of the state and national (firm) samples. Again, there appears to be no significant association between having a CPA serve on the audit committee and audit fee growth rates. Finally, in the audit quality tests of discretionary accruals, there is no evidence to suggest that the sanctioned auditor’s audit quality was different from that of other non-sanctioned audit firms during the three-year window either before or after the sanction. However, the results of the audit quality test using restatements indicate that after the sanction was made public, restatements increased at the regional and national (firm) level for sanctioned firms vs. non-sanctioned firms. At the city (office), MSA and state level there appears to be no effect on restatements as a result of the public disclosure of the PCAOB sanction. Consequently, it is difficult to infer that higher restatements at the regional and national (firm) levels are associated with the PCAOB sanction.
Merrell, Stephanie Ann, "The Economic Costs to Audit Firms of Ethical Violations and the Resulting PCAOB Disciplinary Orders" (2017). LSU Doctoral Dissertations. 4156.
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