The economic impact of audit failures

  1. De Fuentes Barberá, Cristina 1
  2. Porcuna, Rubén 1
  1. 1 Universitat de València
    info

    Universitat de València

    Valencia, España

    ROR https://ror.org/043nxc105

Zeitschrift:
Revista de contabilidad = Spanish accounting review: [RC-SAR]

ISSN: 1138-4891

Datum der Publikation: 2022

Ausgabe: 25

Nummer: 1

Seiten: 159-173

Art: Artikel

DOI: 10.6018/RCSAR.394401 DIALNET GOOGLE SCHOLAR lock_openDIGITUM editor

Andere Publikationen in: Revista de contabilidad = Spanish accounting review: [RC-SAR]

Zusammenfassung

This paper examines the economic consequences associated with an audit failure in the field of statutory auditing services, by analyzing changes in the audit firm’s market share around the time of the investigation process undertaken by the Spanish Public Oversight Board. We explore the variations in audit market share by applying the difference in differences method to a treatment group of 70 sanctioned audit firms and a matched control group of 70 non-sanctioned audit firms. The period of analysis covers the years from 1999 to 2015.  Our results show that the sanctioned audit firms suffered a significant decrease in their relative number of clients. Moreover, this measure of market share decreased not only after the publication of the sanction disclosure (which may be attributed to reputational losses) but also after the initiation of the investigation (which may be attributed to the firm’s reluctance to audit risky clients). Findings are similar for both small and large firms when the market share is measured in terms of clients, whereas the evidence is weak concerning variations in their turnover-based market share. Our conclusions could be of interest for audit firms and also for audit regulators when designing disciplinary systems.

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Informationen zur Finanzierung

This work was supported by the Consellería de Educa-ció, Cultura i Esport de la Generalitat Valenciana under the Grant VALi+d (Resolución 26 Junio 2014) and Grant GV/2021/092 by Conselleria de Innovación, Universidades, Ciencia y Sociedad Digital (Subvenciones a Grupos de Invest-igación Emergentes, Programa para Promoción de la Invest-igación Científica, el Desarrollo Tecnológico y la Innovación en la CV, DOGV 8959 de 24 de noviembre del 2020, Resolu-ción 5 de marzo del 2021).

Geldgeber

    • GV/2021/092

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