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Auditor-provided lobbying service and audit quality


Burnett, Brian; Chen, Hui; Gunny, Katherine (2014). Auditor-provided lobbying service and audit quality. SSRN 1956831, University of Zurich.

Abstract

Regulators and the public are concerned about accounting firms lobbying politicians on behalf of their own audit clients because it could impair auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. Since required disclosures of lobbying activities are limited, we construct a novel proxy to capture auditor lobbying on behalf of audit clients. Using this proxy, we find that perceived audit quality is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients. Our findings suggest that investors perceive auditors’ lobby-ing for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the outcome of the audit process. This evidence sug-gests that reputation concerns and litigation risk may provide enough discipline for auditors to maintain independence.

Abstract

Regulators and the public are concerned about accounting firms lobbying politicians on behalf of their own audit clients because it could impair auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. Since required disclosures of lobbying activities are limited, we construct a novel proxy to capture auditor lobbying on behalf of audit clients. Using this proxy, we find that perceived audit quality is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients. Our findings suggest that investors perceive auditors’ lobby-ing for clients’ political interests as harmful to audit quality but that these concerns do not appear to materialize in the outcome of the audit process. This evidence sug-gests that reputation concerns and litigation risk may provide enough discipline for auditors to maintain independence.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:15 November 2014
Deposited On:23 Aug 2019 08:39
Last Modified:28 Oct 2019 08:29
Series Name:SSRN
Number of Pages:54
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.2139/ssrn.1956831
Other Identification Number:merlin-id:11803

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