Perceptions of preparers, users and auditors regarding financial statement audits conducted by Big 4 accounting firms

Abstract

This study includes the most diverse stakeholder population integrated into one research study regarding perceptions of financial statement audits conducted by Big 4 accounting firms. Whereas prior studies almost exclusively used either archival data or experiments to implicitly derive the stakeholders’ perceptions, this study employed focus groups with financial statement (1) preparers; (2) users consisting of bankers, financial analysts and non-professional investors; and (3) auditors to explicitly solicit perceptions regarding the financial statement audits conducted by Big 4 accounting firms. Some stakeholders opined that Big 4 audit quality has decreased because of the rush to hire staff because of increased Sarbanes–Oxley (SOX) work. However, stakeholders generally agreed that for organizations that are some combination of large, complex and/or multinational, the Big 4 accounting firms will be superior. For other organizations, second- and third-tier accounting firms will provide the same quality audit as the Big 4 firms. One factor as to why there are fewer differences between the firms is that many of the non-Big 4 auditors are Big 4 firm alumni. Regardless of whether a Big 4 audit is actually superior, the stakeholders generally agreed that the Big 4 audit has a cachet that has a monetary value in the financial marketplaces. In terms of differences between the Big 4 firms, the auditors believe there is little difference in how they interpret GAAP or GAAS because there is open communication between the Big 4 firms. Alternatively, the preparers have witnessed differences, particularly, in GAAP interpretations. However, both the auditors and the preparers generally agreed that interpretation differences are wider between Big 4 and non-Big 4 firms.