Joint audits and mutual ties of audit firm networks
Department or Administrative Unit
There has been a lively debate following the 2007 financial crisis regarding the role of joint audits. Prior research argues that joint audits may improve audit quality because of shared audit efforts. However, empirical evidence has been inconclusive. To gain insight into how Big 4 audit firm imprimaturs have become a source of legitimacy in the audit industry, this article investigates how audit networks drive the audit industry in Saudi Arabia. Based on the application of quantitative and qualitative research methods, we conclude that the Big 4 audit firms have strong mutual ties, but ties with other local and international audit firms are weak. We also find the oligopolistic nature of the Big 4 audit firms and international audit firms. Specifically, Ernst & Young, KPMG, PwC, and PKF are controlling over 68% of the audit market. Interviews with accounting professionals suggest that several benefits of joint audits exist, but certain additional costs are also implicated. Our findings are particularly relevant for regulators and local and international policymakers in rethinking and evaluating the appropriateness of either the mandatory or voluntary nature of joint audits in developing countries.
Nurunnabi, M., Donker, H., & Jermakowicz, E. (2020). Joint audits and mutual ties of audit firm networks. Business Horizons, 63(4), 435–449. https://doi.org/10.1016/j.bushor.2020.03.013
© 2020 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.