Auditor-Provided Lobbying Service and Audit Quality

54 Pages Posted: 10 Nov 2011 Last revised: 16 Nov 2014

See all articles by Brian M. Burnett

Brian M. Burnett

Cal Poly, San Luis Obispo

Hui Chen

University of Zurich

Katherine Gunny

University of Colorado at Denver

Date Written: November 15, 2014

Abstract

Regulators and the public are concerned about accounting firms lobbying politicians on behalf of their own audit clients because it could impair auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. Since required disclosures of lobbying activities are limited, we construct a novel proxy to capture auditor lobbying on behalf of audit clients. Using this proxy, we find that perceived audit quality is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients. Our findings suggest that investors perceive auditors’ lobbying for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the outcome of the audit process. This evidence suggests that reputation concerns and litigation risk may provide enough discipline for auditors to maintain independence.

Keywords: lobbying, advocacy threat, auditor independence

JEL Classification: M4

Suggested Citation

Burnett, Brian M. and Chen, Hui and Gunny, Katherine, Auditor-Provided Lobbying Service and Audit Quality (November 15, 2014). Available at SSRN: https://ssrn.com/abstract=1956831 or http://dx.doi.org/10.2139/ssrn.1956831

Brian M. Burnett

Cal Poly, San Luis Obispo ( email )

San Luis Obispo, CA
United States

Hui Chen

University of Zurich ( email )

Plattenstrasse 14
Zurich, CH-8032
Switzerland

Katherine Gunny (Contact Author)

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

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