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Has SOX Enhanced Non–Big 4 Auditors' Ability to Deal with Client Pressure?

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  • Jennifer L. Kao
  • Yan Li
  • Wenjun Zhang

Abstract

We investigate whether non–Big 4 auditors have enhanced their ability to resist client pressure over accrual reporting following the Sarbanes‐Oxley Act (SOX). Regressing abnormal accruals on proxies for economic bonding, we find that changes in the association, defined as (Post–Pre), are significantly negative, implying an improvement in auditor independence after SOX. Among non–Big 4 auditors, only Tier 3 auditors compromised reporting objectivity before SOX, but neither Tier 2 nor Tier 3 auditors yielded to client pressure after SOX. Evidence that these two groups of non–Big 4 auditors differ in the way they cope with client pressure in a loose regulatory regime highlights the importance of assessing the efficacy of SOX separately for subsets of auditors and contributes to an understanding of the underresearched, but inherently important, segment of the audit market served by non–Big 4 auditors. Further analysis indicates that the low pre‐SOX audit quality observed in the full sample is driven by non–PCAOB registrants. Résumé Les auteures se demandent si les auditeurs n'appartenant pas aux Quatre Grands ont amélioré leur capacité de résister aux pressions exercées par les clients pour la comptabilisation de régularisations à la suite de l'adoption de la Loi Sarbanes‐Oxley (SOX). En procédant à une analyse de régression des régularisations anormales sur des variables substitutives à la dépendance économique par rapport au client, les auteures constatent que les changements de nature du lien, défini comme étant antérieur ou postérieur à l'adoption de la SOX, sont particulièrement négatifs, ce qui suppose une amélioration dans l'indépendance de l'auditeur après l'adoption de la SOX. Parmi les auditeurs n'appartenant pas aux Quatre Grands, seuls les auditeurs de troisième échelon avaient compromis l'objectivité de l'information avant l'adoption de la SOX, mais ni les auditeurs de deuxième échelon ni les auditeurs de troisième échelon n'ont cédé aux pressions des clients après l'adoption de la SOX. Les données observées quant à la différence qu'affichent les deux groupes d'auditeurs n'appartenant pas aux Quatre Grands dans la façon de réagir aux pressions des clients dans le cadre d'un régime de réglementation indulgent mettent en relief l'importance d'une évaluation distincte de l'efficacité de la SOX pour les sous‐ensembles d'auditeurs et contribuent à une meilleure compréhension d'un segment du marché de l'audit négligé par les chercheurs, et pourtant d'une importance fondamentale : celui du marché servi par les auditeurs n'appartenant pas aux Quatre Grands. Une analyse plus poussée indique que la faible qualité de l'audit avant l'adoption de la SOX observée dans l'ensemble de l'échantillon est le fait des cabinets non inscrits au PCAOB.

Suggested Citation

  • Jennifer L. Kao & Yan Li & Wenjun Zhang, 2013. "Has SOX Enhanced Non–Big 4 Auditors' Ability to Deal with Client Pressure?," Accounting Perspectives, John Wiley & Sons, vol. 12(2), pages 141-164, June.
    • Handle: RePEc:wly:accper:v:12:y:2013:i:2:p:141-164
    DOI: 10.1111/1911-3838.12012
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    References listed on IDEAS

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