All Bark and No Bite? Audit Firms' Response to Media Watchdogs

59 Pages Posted: 5 Nov 2020 Last revised: 9 Jun 2022

See all articles by Elizabeth N. Cowle

Elizabeth N. Cowle

Colorado State University, Fort Collins - Department of Accounting

Caleb Rawson

University of Arkansas - Department of Accounting

Stephen P. Rowe

University of Arkansas

Date Written: February 22, 2022

Abstract

We examine how auditors respond to news coverage of peer audit firms and evaluate the extent to which national news outlets function as a watchdog over audit firms. We find that when the news media associates peer audit firms with issues that reflect negatively on audit conduct (i.e., misstatements), other audit firms respond by increasing audit attention (increased fees and reporting delay). Further, we find that this effect is amplified among higher risk clients and that, following negative news coverage of either peer audit firms or their own audit firm, an auditor’s clients are more likely to announce a restatement, receive an adverse internal control opinion (adverse ICO), and receive a higher quality audit. Finally, we find no evidence that firms increase attention following non-negative audit related news coverage. Collectively, our evidence suggests that the news media functions as an effective informal oversight mechanism of audit firms by reporting information that drives increased auditor attention and improved audit quality.

Keywords: Auditor Reputation, Media Coverage, Audit Fees, Big 4

JEL Classification: M41, M42

Suggested Citation

Cowle, Elizabeth N. and Rawson, Caleb and Rowe, Stephen P., All Bark and No Bite? Audit Firms' Response to Media Watchdogs (February 22, 2022). Available at SSRN: https://ssrn.com/abstract=3720973 or http://dx.doi.org/10.2139/ssrn.3720973

Elizabeth N. Cowle (Contact Author)

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Caleb Rawson

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Stephen P. Rowe

University of Arkansas ( email )

Business Bldg. 450
Fayetteville, AR 72701
United States

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