Abstract

http://ssrn.com/abstract=2302394
 


 



The Impact of PCAOB AS5 and the Economic Recession on Client Portfolio Characteristics of the Big 4 Audit Firms


Joseph H. Schroeder


Indiana University - Kelley School of Business - Department of Accounting

Chris E. Hogan


Michigan State University - Department of Accounting & Information Systems

November 1, 2012

Auditing: A Journal of Practice & Theory, Forthcoming

Abstract:     
We examine the impact of PCAOB Auditing Standard No. 5 (“AS5”) and the economic recession on risk characteristics and degree of auditor/client misalignment in the publicly-traded client portfolios of Big 4 firms. AS5 and the economic recession both likely resulted in an increase in audit firm personnel capacity as well as a decline in current and future revenue prospects, leading to concerns that the Big 4 firms may pursue clients that present greater risk to the portfolio. We find that the overall portfolio in 2009 presents greater financial risk, attributable to the impact of the recession on continuing clients. A net decrease in audit and auditor business risks is also attributable to continuing clients over this period as increases for new clients are offset by reductions due to departing clients. Overall, the results, which should be of interest to regulators, indicate that Big 4 firms continued to balance their portfolio with risk in mind.

Keywords: PCAOB Auditing Standard No. 5, economic recession, Sarbanes-Oxley Act, auditor portfolio, audit risk

Accepted Paper Series


Not Available For Download

Date posted: July 29, 2013 ; Last revised: May 14, 2014

Suggested Citation

Schroeder, Joseph H. and Hogan, Chris E., The Impact of PCAOB AS5 and the Economic Recession on Client Portfolio Characteristics of the Big 4 Audit Firms (November 1, 2012). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2302394

Contact Information

Joseph H. Schroeder (Contact Author)
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States

Chris E. Hogan
Michigan State University - Department of Accounting & Information Systems ( email )
270 North Business Complex
East Lansing, MI 48824-1034
United States
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