Did PwC Lose Reputation Post Audit Failure at Satyam Computer Services? Evidence from the Indian Audit Market

Abstract

Safeguarding reputation is one major incentive for large auditors to maintain high audit quality. We investigate the phenomenon of reputation by studying the impact of an audit failure on the reputation of a large audit firm in India. Specifically, we analyze the events surrounding the high profile audit failure of Satyam Computer Services and its resultant impact on the audit practice of Price Waterhouse Coopers (PwC) and its affiliates in India. The results of our analysis indicate that following the audit failure there was a high propensity for clients of PwC firms to switch to other firms. We interpret this behavior as indicative of a loss of reputation for PwC due to the Satyam audit failure.

Keywords: reputation effect, Big 4, audit quality