Audit Firms as Networks of Offices

Posted: 4 Aug 2017

See all articles by Scott Seavey

Scott Seavey

Florida Atlantic University - School of Accounting

Michael Imhof

Wichita State University - Barton School of Accountancy

Tiffany Westfall

Ball State University

Date Written: July 19, 2017

Abstract

Prior audit research suggests that most, if not all, audit quality can be explained at the office-level. However, the question remains of whether office-level audit quality is contingent on how individual offices relate to the firm as a whole. Motivated by theories of knowledge management, organizational learning and networks, we posit that individual offices are connected to their audit network through partner knowledge sharing and oversight, which impacts office-level audit quality. We interview Big 4 audit partners and learn that knowledge sharing between partners in different offices is common and intended to aid in the provision of audit services. Using network connectedness to proxy for knowledge sharing and oversight between offices of the same firm, we document that more connected offices are associated with fewer client restatements and lower discretionary accruals. We additionally find that network effects are magnified when accounting treatments are more complex and require greater auditor judgement.

Keywords: Intracorporate Networks, Network Connectedness, Audit Quality

JEL Classification: M41, M42

Suggested Citation

Seavey, Scott and Imhof, Michael and Westfall, Tiffany, Audit Firms as Networks of Offices (July 19, 2017). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3012535

Scott Seavey (Contact Author)

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States

Michael Imhof

Wichita State University - Barton School of Accountancy ( email )

United States

Tiffany Westfall

Ball State University ( email )

2000 W University Ave.
Muncie, IN 47306
United States

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