Audit Efficiency and Effectiveness Consequences of Accounting System Homogeneity Across Audit Clients: A New Form of Knowledge Spillover?

The Accounting Review, Forthcoming

51 Pages Posted: 14 Jun 2022

See all articles by Uday S. Murthy

Uday S. Murthy

University of South Florida - School of Accountancy

Jong Chool Park

University of South Florida - School of Accountancy

Thomas Joseph Smith

University of South Florida

James Whitworth

University of South Florida

Date Written: June 7, 2022

Abstract

We examine the effects of a large number of clients in an audit office using the same enterprise-resource planning (ERP) system such as SAP or Oracle resulting in what we term “client accounting system homogeneity” on audit efficiency and effectiveness. Using a unique dataset of ERP system implementations, we find that accounting system homogeneity is positively associated with audit efficiency. Specifically, we find lower (higher) audit fees for clients using an ERP system from a vendor used by a higher (lower) proportion of clients in that office. We further document that accounting system homogeneity is associated with improved audit effectiveness as proxied by two accruals-based measures, incorrect internal control weakness reporting, and restatements. Our findings are reflective of a new form of knowledge spillover from repeated experiences auditing clients using similar accounting systems, resulting in audits that are not only less expensive but also of higher quality.

Keywords: Accounting System Homogeneity, ERP, Audit Efficiency, Audit Effectiveness

JEL Classification: M41, M42

Suggested Citation

Murthy, Uday S. and Park, Jong Chool and Smith, Thomas Joseph and Whitworth, James, Audit Efficiency and Effectiveness Consequences of Accounting System Homogeneity Across Audit Clients: A New Form of Knowledge Spillover? (June 7, 2022). The Accounting Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4130264

Uday S. Murthy

University of South Florida - School of Accountancy ( email )

Tampa, FL 33620
United States
813-974-6523 (Phone)
813-974-6528 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/accounting/faculty/murthy/index.html

Jong Chool Park

University of South Florida - School of Accountancy ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

Thomas Joseph Smith

University of South Florida ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

James Whitworth (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

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