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The emergence of second-tier auditors in the post-SOX era: An analysis of accounting conservatism

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  • Jenkins, David S.
  • Velury, Uma

Abstract

The increased resource constraints experienced by Big-N audit firms as a result of the passage of Sarbanes-Oxley Act (SOX) contributed to the emergence of second-tier audit firms as viable alternatives to the Big N for public company clients, as suggested by the PCAOB. This study provides a comparative examination of an important property of accounting numbers, earnings conservatism, for clients of Big-N and second-tier audit firms in both the pre- and post-SOX periods. Our findings indicate that, while there is a general increase in conservatism in the post-SOX period, there is no significant difference in conservatism between clients of Big-N and second-tier auditors in either the pre- or post-SOX periods. In addition, the results show greater conservatism in the post-SOX period among clients of Big-N and second-tier firms relative to that of other (non-Big-N/non-second-tier) audit firms. Overall, the results lend support to the PCAOB’s recommendation concerning the use of second-tier auditors as a viable alternative to the Big-N and to the effectiveness of SOX in increasing reporting conservatism among clients of all auditors conducting public company audits in the post-SOX period.

Suggested Citation

  • Jenkins, David S. & Velury, Uma, 2011. "The emergence of second-tier auditors in the post-SOX era: An analysis of accounting conservatism," Research in Accounting Regulation, Elsevier, vol. 23(2), pages 172-176.
    • Handle: RePEc:eee:reacre:v:23:y:2011:i:2:p:172-176
    DOI: 10.1016/j.racreg.2011.06.006
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    References listed on IDEAS

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    Cited by:

    1. Cahan, Steven & Hay, David & Li, Lina Z., 2021. "Audit firm merger and the strategic response by large audit firms," The British Accounting Review, Elsevier, vol. 53(3).
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    3. Weiss, Renee & Kalbers, Lawrence, 2013. "Determinants of auditor changes for non-accelerated filers," Research in Accounting Regulation, Elsevier, vol. 25(1), pages 13-29.

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