Do Office Managing Partners Influence Audit Quality?
Posted: 30 May 2016
Date Written: May 24, 2016
Abstract
This study investigates the association between the line of service (audit, tax, advisory) of Big Four office managing partners (OMPs) and both non-audit service fees and audit quality. Given that audit quality has been shown to vary across offices and because changes in office-level leadership can impact office culture, I examine the impact of the OMP’s line of service on non-audit service fees and multiple measures of audit quality. I find that when an accounting firm office changes leadership to an advisory OMP non-audit service fees increase, while audit quality suffers. These findings suggest that advisory OMPs encourage an office culture that emphasizes selling non-audit services (understates audit quality) relative to other OMPs. Overall, this study provides evidence consistent with regulators’ concerns that the recent trend toward greater advisory services at the largest accounting firms reduces their focus on providing high-quality audits, thereby leading to decreased audit quality. While these findings are robust to a battery of additional tests, caution should be exercised in overstating the regulatory implications of the observed association.
Keywords: office managing partner, audit quality, non-audit services, tone at the top, culture
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