The Scope of Services Controversy Post-SOX

• In Event: Public Interest II

Abstract

This paper builds on works by Zeff (2003) and Wyatt (2004) that suggested the loss of Big Four professionalism - not conflicts of interests - were primary causes of recent major accounting failures. We explore the question, did Sarbanes-Oxley (SOX) settle audit quality issues related to the scope of services provided by the Big Four. SOX prohibited firms from providing most consulting services for their audit clients. Utilizing restatements as a measure of audit failure, evidence suggests that the regrowth of firms’ consulting practices post-SOX corresponds to increases in audit failure rates thus providing empirical support for Zeff and Wyatt’s intuition. This paper contributes to the ongoing discussion of audit quality and to the somewhat intermittent debate on the proper scope of services for CPA firms.

Authors

• R. Drew Sellers, Kent State University

• Michele Dawn Meckfessel, Case Western Reserve University