In-Network Auditors as Information Intermediaries Within Business Groups

Abstract

We investigate if and how in-network auditors (where parent and subsidiary are audited by auditors from the same audit firm network) serve as information intermediaries within business groups. Using a sample of European groups, we show that in-network auditors, in contrast to involving out-of-network auditors, increase the speed at which information is compiled and enhance the comparability of information within groups. We confirm these results through interviews which provide examples of how in-network auditors can improve information flows within groups. As a result, groups and subsidiaries benefit from increased responsiveness to investment opportunities. While prior literature mostly focuses on the role of the auditor in providing assurance to financial reporting, our paper shows that in-network auditors provide increased added value to their audit clients through improved information intermediation within business groups.

Keywords: group audit, auditor alignment, interface between auditing and managerial accounting, internal information quality, common auditor

JEL Classification: M41, M42