The Impact of Consulting Services on Audit Quality: An Experimental Approach

Posted: 2 Aug 2018

See all articles by Zachary T Kowaleski

Zachary T Kowaleski

University of Texas at Austin

Brian W. Mayhew

University of Wisconsin - Madison - Department of Accounting and Information Systems

Amy C. Tegeler

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

We use experimental markets to examine whether providing consulting services to a non‐audit client impacts audit quality. Our paper directly addresses concerns raised by the Public Company Accounting Oversight Board that the largest public accounting firms’ growth in their consulting practices threatens audit quality. We conduct an experiment proposed using a registration‐based editorial process. We compare a baseline where the auditor does not provide consulting services to conditions where auditors provide consulting to audit clients or where auditors only provide consulting services to non‐audit clients. Our unique design provides evidence on whether providing consulting to non‐audit clients strengthens the salience of a client‐cooperative social norm that reduces audit quality. We do not find differences in audit quality by condition in our planned analysis, however we find greater variation in audit quality in the conditions where auditors provide consulting services compared to the baseline. In unplanned analyses, our results suggest providing consulting services increases auditor cooperation with managers, increasing audit quality when managers prefer high audit quality and decreasing audit quality when managers prefer low audit quality.

Keywords: auditor independence; consulting; social bonds; experimental economics

JEL Classification: G41; M42

Suggested Citation

Kowaleski, Zach and Mayhew, Brian W. and Tegeler, Amy, The Impact of Consulting Services on Audit Quality: An Experimental Approach (May 1, 2018). Journal of Accounting Research, Vol. 56, No. 2, 2018, Available at SSRN: https://ssrn.com/abstract=3213661

Zach Kowaleski

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Brian W. Mayhew (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-2714 (Phone)
608-263-0477 (Fax)

Amy Tegeler

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business ( email )

P.O. Box 742
3202 N. Maryland Ave.
Milwaukee, WI 53201-0742
United States

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