Did the 2007 PCAOB Disciplinary Order Against Deloitte Impose Actual Costs on the Firm or Improve Its Audit Quality?

Posted: 9 Jul 2014 Last revised: 1 Jan 2016

See all articles by Jeff P. Boone

Jeff P. Boone

University of Texas at San Antonio - Department of Accounting

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

K. K. Raman

The University of Texas at San Antonio

Date Written: July 8, 2014

Abstract

We examine whether the December 2007 PCAOB disciplinary order against Deloitte affected Deloitte’s switching risk, audit fees, and audit quality relative to the other Big 4 firms over a three-year period following the censure. Our findings suggest that the PCAOB censure was associated with a decrease in Deloitte’s ability to retain clients and attract new clients, and a decrease in Deloitte’s audit fee growth rates. However, methodologies used in extant archival studies yield little or no evidence to suggest that Deloitte’s audit quality was different from that of the other Big 4 firms during a three-year window either before or after the censure. Overall, our results suggest that the PCAOB censure imposed actual costs on Deloitte.

Keywords: PCAOB censure; switching risk; audit fees; Big 4 audit quality

JEL Classification: M41

Suggested Citation

Boone, Jeff P. and Khurana, Inder and Raman, K. K., Did the 2007 PCAOB Disciplinary Order Against Deloitte Impose Actual Costs on the Firm or Improve Its Audit Quality? (July 8, 2014). The Accounting Review, (March 2015), 90(2): 405-441.. Available at SSRN: https://ssrn.com/abstract=2463845

Jeff P. Boone

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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