Do Audit Firm Mergers and Acquisitions of Competing Practices Impact Subsequent Office Audit Quality and Audit Report Timeliness?

• In Event: Auditing 1

Abstract

This paper builds upon literature exploring the effects of audit firm mergers to examine the
impact of acquiring a competitor’s clients on local office audit practice performance. Adopting the
theoretical lens of organizational culture change and communities of practice to understand how audit
firm mergers and acquisitions impact audit practice, we seek empirical evidence of a behavioral effect on
the audit quality of the acquiring practice as compared to practices who were not subject to a
merger/acquisition. Specifically, we examine the impact of the extent of culture change from acquiring a
competing Arthur Andersen & Company (Andersen) practice on local acquiring office’s restatement rates
and audit timeliness, i.e., audit reporting lag (ARL). Results indicate that local office practices that
acquired Andersen clients, and by implication, Andersen partners and staff, saw lower restatement risk
and more timely audits (lower ARL) for their office compared to clients of offices that did not acquire
Andersen clients. The paper’s findings have significant implications beyond just providing additional
evidence of the impact of the fall of Arthur Andersen. These findings support the underlying theory that
despite audit firm national practice and quality control standards, differences in the communities of
practice and cultures between audit firm offices in the U.S. impact important audit outcomes, including
audit quality and the timeliness of audit reports.

Authors

• R. Drew Sellers, Kent State University - Kent

• Aleksandra B Zimmerman, Northern Illinois Universtiy