Differentiating between Arthur Andersen and the Surviving Big Four on the Basis of Auditor Quality: An Empirical Investigation of the Decision to Criminally Prosecute Arthur Andersen

30 Pages Posted: 3 Jan 2005

See all articles by Ross D. Fuerman

Ross D. Fuerman

Suffolk University - Department of Accounting

Date Written: January 1, 2005

Abstract

Criminal prosecution of financial reporting-related corporate misconduct is generally acknowledged to be sometimes warranted. The decision to seek an indictment of Arthur Andersen remains controversial, however. Eisenberg and Macey (2004) posit that because the resulting increased concentration (from the Big Five to the Big Four) in the large public company auditing services market was detrimental to consumers of auditing services, criminal prosecution of Arthur Andersen can only be justified if empirical evidence is provided that indicates that Arthur Andersen was a lower quality auditor than the surviving Big Four. In my analysis of 1125 auditees of their litigation commenced 1996 through 2002, I find empirical evidence that the auditor quality of Arthur Andersen was lower than that of the surviving Big Four CPA firms. This finding suggests that there was justification for the exercise of the prosecutorial discretion of the United States Department of Justice in seeking an indictment of Arthur Andersen.

Keywords: audit quality, auditor quality, private securities class actions, SEC enforcement actions, criminal law, white collar crime, litigation

JEL Classification: M41, M49, K22, K41, K42, L15, G34

Suggested Citation

Fuerman, Ross D., Differentiating between Arthur Andersen and the Surviving Big Four on the Basis of Auditor Quality: An Empirical Investigation of the Decision to Criminally Prosecute Arthur Andersen (January 1, 2005). Available at SSRN: https://ssrn.com/abstract=639644 or http://dx.doi.org/10.2139/ssrn.639644

Ross D. Fuerman (Contact Author)

Suffolk University - Department of Accounting ( email )

Sawyer Business School
Department of Accounting
Boston, MA 02108
United States
617-573-8615 (Phone)

HOME PAGE: http://www.suffolk.edu/business/faculty/12328.php

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