Abstract

http://ssrn.com/abstract=2118825
 
 

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Audit Quality and Auditor Reputation: Evidence from Japan


Douglas J. Skinner


The University of Chicago - Booth School of Business

Suraj Srinivasan


Harvard Business School

July 27, 2012

Accounting Review, Vol. 87, No. 5, September 2012
Harvard PON Working Paper No. 2118825

Abstract:     
We study events surrounding ChuoAoyama’s failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC’s Japanese affiliate and one of Japan’s largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama’s reputation. We use these events to provide evidence on the importance of auditors’ reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama’s clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.

Number of Pages in PDF File: 49

Keywords: Audit quality, auditor reputation, Japan

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Date posted: July 29, 2012  

Suggested Citation

Skinner, Douglas J. and Srinivasan, Suraj, Audit Quality and Auditor Reputation: Evidence from Japan (July 27, 2012). Accounting Review, Vol. 87, No. 5, September 2012; Harvard PON Working Paper No. 2118825. Available at SSRN: http://ssrn.com/abstract=2118825

Contact Information

Douglas J. Skinner (Contact Author)
The University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Chicago Booth School of Business Logo

Suraj Srinivasan
Harvard Business School ( email )
Soldiers Field
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=10700
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