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
Date Written: July 8, 2014
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: Suggested Citation