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The purpose of this study is to examine the impact of public accounting firms' mix of service revenue on their average productivity measured by total revenue per partner.

Using data from Public Accounting Report on top public accounting firms by revenue, an OLS regression model is applied by regressing revenue per partner on the percentage of revenue generated from auditing and attest, tax, management consulting, and other services independently.

Results show that the proportion of auditing and attest service revenue is negatively associated with public accounting firms' productivity. However, the proportion of other services revenue, other than tax and management consulting services, is positively associated with productivity. Additional investigation shows that if public accounting firms provide other services in their mix of services, then tax and management consulting services do not contribute to these public accounting firms' productivity.

Results of this study cannot be generalized beyond the top 100 public accounting firms, and the measurement of revenue per partner ignores the exact number of partners within different service areas.

Although auditing and attest services are considered core services of public accounting firms, they do not increase the productivity of the firm.

This study helps in assessing whether average productivity of public accounting firms is affected by the proportion of a specific type of service in the post‐SOX era.

Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times as a means of improving auditor independence. For example, in the United States, the Public Company Accounting Oversight Board (PCAOB) has considered mandatory rotation as a solution to the independence problem (PCAOB, 2011) and the European Parliament approved legislation that will require mandatory rotation in the near future (Council of European Union, 2014). The concept of implementing a mandatory rotation policy has been encouraged by some constituents of audited financial statements and rejected by other constituents of audited financial statements. Although there are apparent pros and cons of such a policy, the developmental process of such a policy in this country has not necessarily been an open-democratic, objective process. Universal mandatory rotation may or may not be the ideal solution; however, an open-democratic, objective process is needed to facilitate the development of a solution that considers the needs of all major stakeholders of audited financial statements – not simply accounting firms and public companies, but also investors. The purpose of this paper is to critically examine key issues relating to mandatory rotation and to encourage and stimulate future research and ongoing dialogue regarding this issue, in spite of efforts by certain constituents to silence the issue. This paper provides an overview of the various reasons, including practical, theoretical, political, and self-motivated reasons, why a mandatory rotation policy has not been implemented in the United States in order to address the potential conflict of interest between the auditor and client. This paper will also discuss how some deliberations of mandatory rotation have been flawed. The paper concludes with a summary of key issues along with two approaches for regulators, policy makers, and academics to consider as ways to improve the process and address auditor independence. The authors are not advocating for any specific solution; however, we are advocating for a more objective, unified approach and for the dialogue regarding auditor rotation to continue.

The use of choice-based, matched, and other stratified sample designs is common in auditing research. However, it is not widely appreciated that the data analysis for these studies has to take into account the non-random nature of sample selection in these designs. A choice-based, matched or otherwise stratified sample is a nonrandom sample that must be analyzed using conditional analysis techniques. We review five research streams in the auditing area. These streams include work on determinants of audit litigation, audit fees, auditor reporting in financially distressed firms, audit quality and auditor switches. Cram, Karan, and Stuart (CKS) (2009) demonstrated the accuracy of conditional analysis, compared to unconditional analysis, of nonrandom samples through the use of simulations, replications, and mathematical proofs. Papers since published have continued to rely upon questionable research, however, and it is hard for researchers to identify what is the reliability of a given work. We complement and extend CKS (2009) by identifying audit papers in selected research streams whose results will likely differ if the data gathered are analyzed using conditional analysis techniques. Thus research can be advanced either by replication and reanalysis, or by refocus of new research upon issues that should no longer be viewed as settled.

The paper reports on a study that investigated the (potential) impact of client use of blockchain technology on financial statement audits of Australian accounting firms.

Data were primarily collected from semi-structured interviews with a range of stakeholders including audit partners from first- and second-tier accounting firms in Australia. The interviews focused on the perceived (potential) impact of blockchain on the stages of obtain (retain) engagement, engagement planning, risk assessment, audit evidence and reporting of financial statement audits of clients that use blockchain technology. Perceptions of changes to financial statement audits were interpreted using the logics of professionalism and commercialism.

Australian accounting firms have either obtained or considered engagements with clients with a cryptocurrency business or that use a blockchain platform although they are a small group. There is a view that blockchain technology is distinctive and therefore poses risks not encountered before in audit engagements. These risks would most likely shift how firms plan, design audit methodologies and execute financial statement audits. The study showed that the logics of professionalism and commercialism are not conflicting but instead complementary. They present both opportunities and challenges for firms to apply and develop audit expertise in an emerging area in audit.

Being an exploratory study, the findings are tentative. A case study of an audit engagement with a cryptocurrency business will add to a nuanced understanding of the challenges posed to financial statement audits by blockchain technology.

This study is novel because of its focus on the impact of an evolving technology on the stages of financial statement audits.

This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our knowledge of audit regulation. The traditional self-regulatory system of the accounting profession came to an end, in 2002, when the PCAOB was established to oversee the audit firms of publicly traded companies. This paper contributes to the controversial debate about self-regulation versus independent regulation by analyzing, categorizing, and comparing the research findings on the peer review system and the PCAOB system along three dimensions: the validity of peer reviews and PCAOB inspections, the recognition of reviews and inspections by decision-makers (e.g., investors, bankers, committees), and the effect of reviews and inspections on audit quality. Synthesizing the research on the regulatory regimes suggests that the notion of external quality control, both through peer reviews and government inspections, is positively linked with an improvement of audit quality. At the same time, the analysis indicates that external users do not seem to recognise peer review and PCAOB reports as very useful instruments for decision-making, which is in line with an identified rather skeptical perception of the audit profession on reviews and inspections. Overall, this study reveals that although the academic literature on peer review and PCAOB inspection is extensive it has not produced definitive conclusions concerning various aspects of audit regulation. This paper shows how this blurred picture is due to conflicting research findings, the dominance of the quantitative research paradigm, and unchallenged assumptions within the literature, and concludes by proposing research opportunities for the future.

The purpose of this study is to examine the association between certain audit firm characteristics and the number of Public Company Accounting Oversight Board (PCAOB)-identified audit deficiencies.

Using a hand-collected sample of PCAOB inspection reports for small audit firms with 100 or less issuer clients from 2007 through 2010, an ordinary least squares model is applied by regressing the number of deficiencies on a set of audit firm characteristics.

Results show that the number of PCAOB-identified audit deficiencies is positively associated with the number of issuer clients and negatively associated with the number of branch offices, the human capital leverage and the organization structure as Limited Liability Partnership firms. Additional analysis also shows that the PCAOB inspection length is positively associated with the number of deficiencies, the number of branch offices and the number of issuer clients, but negatively associated with the organization structure as limited liability company firms. Moreover, the PCAOB inspection lag is positively associated with the number of deficiencies and the number of issuer clients.

Results of this study cannot be generalized beyond public accounting firms with 100 or fewer issuer clients. In addition, there is a possibility that other measurements of firm-level characteristics that impact the number of PCAOB-identified audit deficiencies were not captured in the study.

This study explains the association between audit firm characteristics and PCAOB-identified audit deficiencies. Our results caution small audit firms about not having enough professional staff, low human capital leverage and serving too many issuer clients, as those factors may potentially impair audit quality.

This study helps to explain the relationship between audit deficiencies and controllable, measurable firm-level characteristics. It is, therefore, differentiated from previous studies, most of which were focused on PCAOB-identified audit deficiencies as measures of audit quality and stakeholder reactions to PCAOB reports.

This paper investigates the impact of the PricewaterhouseCoopers (PwC) merger in Australia on existing and potential clients of the new merged firm. From prior theory it is expected that some existing clients may have an incentive to switch away from a newly merged firm as the same larger firm now audits close competitors once audited by separate firms. Prior theory also suggests that another group of potential clients should be attracted to the newly merged firm where the merger enhances or creates industry specializations. The expectation is that in both of these instances there will be increased switching activity associated with the newly merged audit firm. Contrary to expectations, a significantly lower level of switching behaviour was observed for the newly merged firm compared with that of the other Big 5 firms, suggesting that an advantage of enhanced specialization may not be the attraction of new clients but the retention of existing clients. When comparing the nature of the switches, some support was found for the view that the switches to the new firm were likely to be in enhanced areas of specialization, but no evidence was found to suggest that close competitors would switch away from this firm. The greater rate of retention of clients compared with other Big 5 firms was not associated with a more competitive audit pricing policy.

This article is the third in a trilogy of articles that discuss the professionalism (or deprofessionalism) of the accounting profession. The first examines the slow uphill climb of accounting and auditing practice to the level of being recognized as a highly trusted profession. The second examines the stagnation in professionalism leading to deprofessionalization of the accounting profession. This third article looks at the resulting directionless efforts of accounting and auditing firms in the wake of major deprofessionalization events. The interest in this study is the time period immediately following the passage of the Sarbanes–Oxley Act (SOX) of 2002 which is described in this paper as the “Post-SOX” history of public accountancy in the United States. During this time period, nearly equally mixed activities of professionalism and deprofessionalism have resulted in a status quo with directionless efforts doing little if anything to reverse decline in professionalism. Public accountants continued to experience conflict with the Securities and Exchange Commission (SEC) over independence rules. The large Certified Public Accountant firms generated controversies and squabbles concerning “auditing and consulting,” while at the same time they faced questions regarding the marketing and selling of aggressive tax shelters. In addition, most of the self-regulating aspects of the profession declined dramatically following passage of SOX. While initially both tax fees and audit fees of CPA firms increased during this time period, concerns are again arising as the large CPA firms more recently have renewed the emphasis on advisory services. While revenues have both increased and changed in composition during the post-SOX era, public opinion has maintained a status quo. The post-SOX era has also seen a weakening in the Code of Conduct, providing more liberties for CPAs to maximize self-interest. Meanwhile, the PCAOB faced constitutional challenges, while at the same time the AICPA experienced strong divisions in its membership. To provide some sense to these directionless efforts, this study, similar to the prior two articles in this trilogy, concludes with a summary analysis based on the nine SOCRECELIST criteria, and the question whether public accountants have learned their history lesson.

Prior research finds evidence that audit quality is positively associated with the joint purchase of tax nonaudit services (NAS) and concludes that jointly provided tax services result in audit-related knowledge spillovers that lead to improved audit quality. We extend this line of research. We examine the relation between auditor-provided tax services and restatements and determine whether this relation differs when the auditor is a small or large accounting firm. We also examine whether the Securities Exchange Commission’s restrictions on certain tax consulting practices (SEC, 2006) altered this relation. Specifically, we measure whether the probability of financial statement restatements varies with (1) variation in accounting firm size (measured as PCAOB annually inspected firms versus PCAOB triennially inspected firms), and (2) the joint provision of audit and tax services. We find a negative relation between auditor-provided tax services and restatements which is consistent with prior research. We also find that this relation is significantly more negative when the auditor is a small accounting firm. Finally, we find that the lower probability of a restatement associated with the joint provision of audit and tax services persists regardless of auditor size after the SEC-imposed restrictions on certain tax consulting services in 2006. Our study provides evidence that accounting firms, and particularly small accounting firms, benefit from knowledge spillovers when jointly providing audit and tax services and these benefits lead to improved audit quality. Prior research concludes that large auditors provide higher audit quality and that the provision of tax services improves audit quality. Our results provide evidence that audit quality improvements are greater for small auditors and their clients. This improvement narrows that audit quality gap between large and small auditors. We do not find evidence that the SEC’s restrictions on certain tax consulting services altered the relation between audit quality and tax services.

Leveraging lobbying theory, the authors analyze responses to the American Institute of Certified Public Accountants (AICPA) proposal suggesting the removal of state and local governmental accounting from the content tested on the uniform certified public accountant (CPA) examination. Furthermore, the authors compare the responses to a prior exam content review to place the uniqueness of the more recent response in perspective.

The authors examine 181 comment letters obtained from the AICPA website. In addition, the relative concentration of governmental entities across the USA is studied for correlation with the response rate.

Consistent with lobbying theory, the authors find that participating governmental entities overwhelmingly argued for the retention of governmental accounting. In contrast, most other groups of respondents (accounting firms, state societies, etc.) had at least one letter that agrees with the removal of the content.

While the letter writers appear to be successful in retaining the governmental accounting content on the CPA exam, the majority of the detailed content has been placed within a specialized area on the new version of the CPA exam, expected to be deployed in 2024. This means that fewer CPA candidates will be exposed to governmental accounting than under the current regime. It has implications for governmental units seeking qualified candidates to fill their staffing needs especially as fewer universities offer governmental accounting courses.