Our expectations challenge the view that larger audit firms, in order to avoid exposure to litigation, report more conservatively.
Overall, our evidence suggests that more recently, larger audit firms, relative to regional audit firms, acted more proactively to lessen their litigation risks through increasing centralization of client selection and acceptance processes.
We initially document that over time, financially stressed public companies are shifting to regional audit firms, partly due to the actions of larger audit firms shedding these clients, which represent ex-ante conservatism.
In contrast, a larger auditing firm, Bureau Veritas, awarded 46 certificates in Pakistan over a period twice as long.
Other final recommendations from the Treasury panel called for larger auditing firms, which are private companies, to provide public annual reports containing "relevant firm information," as well as nonpublic audited financial statements, to the oversight board.
It looks at "restatements"—corrections to accounts by the largest audit clients of the top accounting firms.
Instead, after intense negotiations and under an SEC threat of an imposed settlement, four of the five largest audit firms agreed to a big concession.
"The fact that the action is being taken collectively against all of the four largest audit firms and one other firm demonstrates that this is a professionwide issue, not unique to one firm," PricewaterhouseCoopers said in a statement.
"There is a significant expectations gap between what various stakeholders believe auditors do or should do in detecting fraud, and what audit networks are actually capable of doing, at the prices that companies or investors are willing to pay for audits," stated a position paper issued in 2006 by the chief executives of the six largest audit networks.
Sadly the letter was never published, but was sold a few years ago for $16,500.Anne Ammundsen Broadstairs, Kent The insurance predicament* SIR – In your article on lax corporate oversight by the large audit firms ("Dozy watchdogs", December 13th), you suggest that the problem is partly due to the fact that companies pay for their own audits.
Not only has the decision in effect killed one of the world's largest audit firms, it raises the prospect of more cases to come with the probable next target the executives behind the bankruptcy of Enron, the biggest corporate collapse in history.Or did they?
