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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. Weiss, Renee & Kalbers, Lawrence, 2013. "Determinants of auditor changes for non-accelerated filers," Research in Accounting Regulation, Elsevier, vol. 25(1), pages 13-29.
    2. 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).
    3. Oler, Mitchell, 2014. "Accounting standard’s effectiveness on equity overstatement – Conservatism when it matters," Research in Accounting Regulation, Elsevier, vol. 26(1), pages 75-82.

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