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03.0 Articles

Auditor Changes and the Cost of Bank Debt0434Jennifer M Mueller-PhillipsJune 26, 2017
Spatial Competition in Local Audit Markets and the Fallout...0235Jennifer M Mueller-PhillipsMay 30, 2017
Shareholder Votes on Auditor Ratification and Subsequent...0279Jennifer M Mueller-PhillipsApril 19, 2017
Auditor Ratification: Can’t Get No &...0158Jennifer M Mueller-PhillipsApril 19, 2017
Audit Report Restrictions in Debt Covenants0393Jennifer M Mueller-PhillipsAugust 30, 2016
Investor Heterogeneity, Auditor Choice, and Information...0268Jennifer M Mueller-PhillipsMay 31, 2016
Small Audit Firm Membership in Associations, Networks, and...0289Jennifer M Mueller-PhillipsMay 31, 2016
Non-Big 4 Local Market Leadership and its Effect on...0309Jennifer M Mueller-PhillipsMay 31, 2016
Internal Control Opinion Shopping and Audit Market...0671Jennifer M Mueller-PhillipsMarch 31, 2016
Restatements: Do They Affect Auditor Reputation for Quality.0568Jennifer M Mueller-PhillipsFebruary 17, 2016
Do Clients Avoid “Contaminated” Offices? The Economic Con...0560Jennifer M Mueller-PhillipsJanuary 20, 2016
Management Influence on Auditor Selection and Subsequent...0215Jennifer M Mueller-PhillipsSeptember 17, 2015
The Value of Big N Target Auditors in Corporate Takeovers.0243Jennifer M Mueller-PhillipsSeptember 16, 2015
Do Private Company Targets that Hire Big 4 Auditors Receive...0199Jennifer M Mueller-PhillipsJuly 30, 2015
Does a Lack of Choice Lead to Lower Quality? Evidence from...0436Jennifer M Mueller-PhillipsMarch 11, 2015
Auditor industry expertise and cost of equity0391Jennifer M Mueller-PhillipsMarch 10, 2015
Can Big 4 versus Non-Big 4 Differences in Audit-Quality...0980Jennifer M Mueller-PhillipsMarch 4, 2015
Damaged Auditor Reputation and Analysts' Forecast...0276Jennifer M Mueller-PhillipsMarch 3, 2015
National Level, City Level Auditor Industry Specialization...0273Jennifer M Mueller-PhillipsFebruary 24, 2015
Determinants and Market Consequences of Auditor Dismissals...01850Jennifer M Mueller-PhillipsFebruary 24, 2015
Founding Family Ownership and the Selection of Industry...0368Jennifer M Mueller-PhillipsFebruary 15, 2015
A Reexamination of Audit Fees for Initial Audit Engagements...0492Jennifer M Mueller-PhillipsDecember 3, 2014
Market Reaction to Auditor Switching from Big 4 to...0745Jennifer M Mueller-PhillipsNovember 10, 2014
When the PCAOB Talks, Who Listens? Evidence from Stakeholder...0325Jennifer M Mueller-PhillipsJune 22, 2014
Bringing Darkness to Light: The Influence of Auditor Quality...0261Jennifer M Mueller-PhillipsJune 2, 2014
Evidence on the Association between Financial Restatements...0278Jennifer M Mueller-PhillipsJanuary 14, 2014
Does Audit Fee Homogeneity Exist? Premiums and Discounts...0422Jennifer M Mueller-PhillipsOctober 29, 2013
An Experimental Investigation of the Influence of Audit Fee...0424Jennifer M Mueller-PhillipsOctober 15, 2013
Recent Auditor Downgrade Activity and Changes in Client’s D...0315Jennifer M Mueller-PhillipsOctober 3, 2013
Changes in Audit Market Competition and the Big N Premium0247Jennifer M Mueller-PhillipsOctober 3, 2013
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  • Jennifer M Mueller-Phillips
    Does a Lack of Choice Lead to Lower Quality? Evidence from...
    research summary posted March 11, 2015 by Jennifer M Mueller-Phillips, tagged 03.0 Auditor Selection and Auditor Changes, 11.0 Audit Quality and Quality Control in Auditing Section Research Summaries Space public
    Does a Lack of Choice Lead to Lower Quality? Evidence from Auditor Competition and Client Restatements
    Practical Implications:
    • This study, “address the association between MSA-level auditor competition and audit quality” which has seldom been investigated by prior literature. Such has implications for both regulators and audit market participants.
    • This study, “significantly extends recent research dealing with MSA-level competition by investigating a more direct, ‘bright line’ measure of audit quality—financial statement restatements.”
    • This study’s results, “lend empirical support to the conclusions of the GAO (2003, 2008) studies, which indicate that audit quality does not necessarily suffer in the presence of less competitive audit markets.” In fact, as is asserted in the study’s conclusion, “audit quality, as proxied by the existence of restatements, is lower when audit competition is higher.”

    For more information on this study, please contact Nathan J. Newton.


    Nathan J. Newton, Dechun Wang, and Michael S. Wilkins (2013) Does a Lack of Choice Lead to Lower Quality? Evidence from Auditor Competition and Client Restatements. AUDITING: A Journal of Practice & Theory: August 2013, Vol. 32, No. 3, pp. 31-67.

    auditor competition; audit markets; restatements.
    Purpose of the Study:

    This study examines the relationship between audit firm competition and the quality of audit reports. As is asserted in the study’s introduction, “Despite evidence that the dominant accounting firms tend to provide the best audits, regulators and market participants have expressed concern that audit quality may be impaired when audit markets are concentrated.” Thus, the purpose of this study, “is to address this issue empirically by investigating how competition among audit firms in local markets affects the quality of services that auditors provide to their clients.”

    Design/Method/ Approach:
    • In order to test its hypothesis, this study measures, “audit market competition from 2000 to 2009 at the metropolitan statistical area (MSA) level.”
    • Study measures, “audit quality using financial statement restatements, where the subsequent identification of misstatements resulting in a restatement indicates that the engagement auditor performed a lower-quality audit.”

    This study finds, “that higher auditor competition is associated with lower audit quality.”

    • Clients located in MSAs with a more competitive audit market are more likely to restate earnings because of a GAAP failure, with the association driven by a higher likelihood of restatements that have a negative net effect (NNE) on the financial statements.
    • Study does not find any association between auditor competition and the likelihood of restatements that have a positive net effect (PNE) on the financial statements.
    Audit Quality & Quality Control, Auditor Selection and Auditor Changes