Knowledge Spillover from Audit Clients Using the Same ERP System: Effects on Audit Efficiency, Quality and Pricing

• In Event: Knowledge Sharing and Spillovers

Abstract

We utilize a unique dataset (Global Software Leads) to examine the association between the level of ERP expertise acquired through interactions with various clients at the office level and audit report lag and audit fees of clients with similar ERP systems. Consistent with our prediction we observe shorter audit report lags and better audit quality when clients use an ERP system that is used by more of the clients of the office conducting the audit. We suggest that this finding is consistent with audit offices gaining knowledge of an ERP system and using that knowledge to improve the audit efficiency and audit quality of clients where that ERP-specific knowledge is more relevant. We further document that this ERP familiarity is associated with lower audit fees, suggesting that the audit firm appears to share the efficiency gains with the client through lower fees. The latter finding provides an important contribution to the literature which has generally failed to find evidence of fee discounts when the auditor appears to experience efficiency gains. The findings of this study are therefore important and timely to both practice and academics as the profession continues to move toward a more tech enabled audit and as most large audit clients operate ERP systems.

Authors

• Uday S Murthy, University of South Florida

• Jong Chool Park, University of South Florida

• Thomas Joseph Smith, University of South Florida

• James D Whitworth, University of South Florida