Did PwC Lose Reputation Post Audit Failure at Satyam Computer Services? Evidence from the Indian Audit Market

• In Event: International Auditing

Abstract

It has been long debated whether loss of reputation or threat of litigation dominates as an explanation for audit quality. The literature to date is eclectic and it has been difficult to separate out the two effects. In this paper we use the Indian context, where there is a minimal threat of litigation, to study the impact of audit failure on the reputation of large audit firms. Specifically, we analyze the events surrounding the high profile audit failure of Satyam Computer Services and its resultant impact on the audit practice of Price Waterhouse Coopers (PwC) and its affiliates in India. The results of our analysis indicate that following the audit failure there was a high propensity for clients of PwC firms to switch to other Big N firms. We interpret this behavior as indicative of a loss of reputation of PwC on account of the Satyam audit failure.

Authors

• Partha Mohapatra, Zayed University

• Anup Nandialath, Zayed University

• Allan Graham, Zayed University