The Revival of Large Consulting Practices at the Big 4 and Audit Quality

Posted: 19 Jun 2020 Last revised: 4 Sep 2020

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Matthew Ege

Texas A&M University - Department of Accounting

Andy Imdieke

University of Notre Dame - Mendoza College of Business

Eldar Maksymov

Arizona State University (ASU) - School of Accountancy

Date Written: June 2, 2020

Abstract

The Big 4 have acquired numerous consulting firms since the late 2000s, and regulators are concerned that a focus on consulting practices could negatively affect audit quality through audit firm culture. Audit firms counter by arguing that expertise gained through consulting can improve knowledge brought to audits. Using a difference-in-differences design, restatements as an audit quality proxy, and enterprise resource planning- (non-enterprise resource planning-) related acquisitions as a proxy for audit- (non-audit-) related acquisitions, we find nuanced support for both positions, depending on acquisition type. Audit quality increases (decreases) at the local office level after the acquisition of consulting firms that provide services that relate (do not relate) to the audit. Semi-structured interviews of 17 highly-experienced audit practitioners suggest that consulting firm acquisitions positively (negatively) affect audit quality through expertise transfer (shifting the culture towards commercialism) when acquisitions are (are not) audit-related. Thus, the effect of consulting firm acquisitions on audit quality appears to depend on how closely the acquired services are related to the audit.

Keywords: Audit Quality, Consulting, PCAOB, Non-Audit Services

JEL Classification: M41, M42

Suggested Citation

Donelson, Dain C. and Ege, Matthew and Imdieke, Andy and Maksymov, Eldar M., The Revival of Large Consulting Practices at the Big 4 and Audit Quality (June 2, 2020). Accounting, Organizations and Society, Forthcoming, https://doi.org/10.1016/j.aos.2020.101157, Available at SSRN: https://ssrn.com/abstract=3611010 or http://dx.doi.org/10.2139/ssrn.3611010

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Matthew Ege (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Andy Imdieke

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Eldar M. Maksymov

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

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