Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

52 Pages Posted: 31 Aug 2011 Last revised: 4 Oct 2013

Nathan J. Newton

University of Missouri at Columbia - School of Accountancy

Dechun Wang

Texas A&M University

Michael S. Wilkins

Trinity University

Abstract

We examine the relationship between auditor competition and the likelihood of financial restatements that occur as a result of failures in the application of GAAP. Policy makers and audit market participants have expressed concern that the current level of auditor competition is low, resulting in a negative impact on audit quality. However, we find that restatements are more likely to occur in metropolitan statistical areas (MSAs) that have higher auditor competition. The association between audit market competition and restatements is statistically and economically significant. Our finding that audit quality is higher when auditor competition is lower suggests that at least some of the concerns about concentrated audit markets may be unfounded.

Keywords: auditor competition, audit quality, restatements

Suggested Citation

Newton, Nathan J. and Wang, Dechun and Wilkins, Michael S., Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements. Auditing: A Journal of Practice & Theory, Vol. 32, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=1919584 or http://dx.doi.org/10.2139/ssrn.1919584

Nathan J. Newton

University of Missouri at Columbia - School of Accountancy ( email )

College of Business
Columbia, MO 65211
United States

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

Michael S. Wilkins (Contact Author)

Trinity University ( email )

One Trinity Place
San Antonio, TX 78212-7200
United States
210-999-7347 (Phone)

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