The Impact of Benefit Plan Audits on the Financial Statement Audit

46 Pages Posted: 18 Jul 2018 Last revised: 4 Sep 2019

See all articles by Jaclyn Prentice

Jaclyn Prentice

Oklahoma State University

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems

Gary F. Peters

University of Arkansas at Fayetteville

Date Written: August 31, 2019

Abstract

Benefit plan audits, a material but less understood public accounting service, represent a non-audit service that is “audit-related.” We explore the implications of benefit plan audits for the financial statement audit. We find that performing a benefit plan audit for a company significantly improves the likelihood that the firm will be selected as a company’s financial statement auditor in the future. Additional analysis indicates that performing benefit plan audits is a way for not just Big 4, but also small audit firms to get a “foot in the door” with potential financial statement audit clients. Further, we find that companies that engage the same audit firm for both their benefit plan and financial statement audits have a significantly lower likelihood of misstatements and shorter audit report lags. Finally, we perform an additional analysis that provides evidence that the performance of the benefit plan and financial statement audits by the same auditor reduces the likelihood of switching financial statement auditor, consistent with the joint provision of these services creating greater bonding and higher switching costs. Our findings speak to the continued debate over effective market expansion of financial statement audit providers, audit quality determinants, and audit efficiencies.

Keywords: auditor choice; audit quality; audit-related services; benefit plan audits; switching costs

JEL Classification: M4, M40, M41, M42, M49

Suggested Citation

Prentice, Jaclyn and Bills, Kenneth L. and Peters, Gary F., The Impact of Benefit Plan Audits on the Financial Statement Audit (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=3204039 or http://dx.doi.org/10.2139/ssrn.3204039

Jaclyn Prentice (Contact Author)

Oklahoma State University ( email )

308 Business Building
Stillwater, OK 74078
United States

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Gary F. Peters

University of Arkansas at Fayetteville ( email )

Sam M. Walton College of Business
Department of Accounting
Fayetteville, AR 72701

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