The contagion effect of office-level audit failures

Title from PDF of title page (University of Missouri--Columbia, viewed on October 19, 2012).The entire thesis text is included in the research.pdf file; the official abstract appears in the short.pdf file; a non-technical public abstract appears in the public.pdf file.Dissertation advisor: Dr. Jere R. FrancisVita.Ph. D. University of Missouri--Columbia 2011."May 2011"I investigate if the presence of an audit failure in an auditor office location in a given fiscal year indicates the presence of a contagion effect on the quality of other concurrent audits conducted by the office. Audit quality is inferred by cross-sectional differences in clients' audited earnings, specifically, abnormal accruals. I find that the presence of at least one audit failure (defined as a downward restatement of net income by a client) is indicative of contagion within the office. Specifically, for offices with one or more client restatements, abnormal accruals of other clients in the office are significantly larger (on average) than in those offices that have no restatements. This result holds for offices of both Big Four and non-Big Four auditors. Further analysis indicates the contagion in Big Four offices occurs in smaller offices and in Big Four offices where a low percentage of audits are conducted in those industries in which an office is the city-level industry leader (irrespective of office size).Includes bibliographical reference