Major Accounting Firms Research Articles

The Future of Law Firms (and Lawyers) in the Age of Artificial Intelligence

Abstract This article explores the future for lawyers and law firms in the light of the changes that Artificial Intelligence (“AI”) is already bringing to the universe of legal services. Part I briefly describes some of the ways AI is already in use in ordinary life - from facial recognition, through medical diagnosis to translation services. Part II describes how AI is transforming what it means to provide legal services in six primary areas: litigation review; expertise automation; legal research; contract analytics; contract and litigation document generation; and predictive analytics. Part III explores who are the providers of these AI driven legal services - often non-lawyer legal service providers - and how these providers are replacing at least some of what clients have traditionally sought from lawyers. Part III also discusses the implications of all these changes both for the future role of lawyers individually, and in particular what services will clients still need lawyers to perform: judgment, empathy, creativity and adaptability. In turn, this Part examines what will these changes mean for the size, shape, composition and economic model of law firms, as well as the implications of these changes for legal education and lawyer training. Part IV identifies the principal legal, ethical, regulatory and risk management issues raised by the use of AI in the provision of legal services. Finally, in Part V the article considers who will be the likely providers of AI based services other than law firms: legal publishers, major accounting firms and venture capital funded businesses.

Accounting for success: The Big Four as allies of finance in post crisis regulatory reform

AbstractThis paper argues that the Big Four accountancy firms—PricewaterhouseCoopers, Deloitte, Ernst & Young, KPMG—operate as key political allies of the financial sector within financial regulatory battles. Leveraging the theoretical notion of “actor plurality” within the policymaking process, I demonstrate how, in the case of the European Union Financial Transaction Tax (FTT) initiative, accountancy professionals offered crucial support for the financial sector. They did so by disseminating key oppositional claims against the FTT proposal, developing tax mitigation and relocation strategies, preparing negative impact assessments, and advising on lobbying tactics. This allied stance of the Big Four is primarily a consequence of the ways in which their commercial priorities have been fundamentally transformed by the provision of consultancy services within the modern global economy. Moreover, the paper shows how accountancy experts are deeply embedded within a network of professional relationships that fosters substantive policy alignment between the Big Four and prominent financial lobbying groups. By highlighting the overlooked role of the major accountancy firms within post crisis regulatory reform, the study illuminates the unequal power relations that permeate financialized societies and contributes to a deeper understanding of how financial preferences continue to prevail within the policymaking process.

Social Media Usage by CPA Firms According to Firm Services and Size

No longer is there a question of whether accounting firms should use social media in their marketing, the quandary is in deciding which social media platforms are best suited for the firm and its clients. Research has shown that different industries use different social media platforms to better meet the needs of their customers. This prompts the question of whether accounting firms should be using specific social media platforms depending on their service focus. The purpose of the study is to determine which social media platforms are being used by major accounting firms and whether usage differs by the firm’s services and attributes related to firm size. Findings reveal that accounting firms use nearly four social media platforms on average. LinkedIn, Twitter, and Facebook are used by over 90 percent of the firms surveyed. Use of other platforms, such as Google+ and Instagram, vary depending on the firm’s service focus.

Moderating Effects of Agency Problems and Monitoring Systems on the Relationship between Executive Stock Option and Audit Fees: Evidence from Korea

Since executive stock options may give rent-seeking incentives to CEOs, CEOs with stock options are likely to misallocate corporate resources to seek personal gains, which in turn may lead to a decrease in firm value. High-quality audit services can reduce the negative impacts of executive stock options on firm value and help firms to ensure sustainable growth. However, while most of the existing accounting literature related to executive stock options (ESO) is mainly focused on earnings management, there are relatively few studies that investigate the relation between ESO and audit fees. At the same time, while previous studies on ESO have been conducted in advanced countries, few studies have identified the relationship between ESO and audit fees in emerging markets. Therefore, it is necessary to examine the effect of ESO under circumstances different from those of developed countries. To fill this gap, we investigated the association between executive stock options and audit fees and examine the moderating effects of agency problems and monitoring systems on the relationship. Using 462 observations from 110 nonfinancial Korean listed companies, for the period of 2000 to 2005, we found that executive stock options are positively related to audit fees. In addition, we found that the effects of executive stock options on audit fees are even higher in firms with high agency problems, effective internal monitoring systems, and major accounting firms. This study can help regulatory agencies to validate audit fee regulations, such as the International Standard on Auditing, that consider ESO a significant risk factor. In addition, these results can help external auditors to set up the specific guidelines for pricing audit fees. Furthermore, the results of this study will contribute to the construction of more desirable corporate governance structure in Korean companies, which in turn would not only enhance firm value but also strengthen the sustainability of companies belonging to the emerging markets.

The Effective Factors of Professional Learning : Study on Accounting Firms in Korea

The purpose of this study is to substantiate the affecting factors of informal learning outcomes for professions in various dimensions of an individual and organization. In specific, the study analyzed the effects of learning motivation, job characteristics, and a supportive learning environment which have on task-related knowledge acquisition, adapting to organization and understanding contexts, relationship formation, and improving self-development-ability. The participants of the study were 261 professionals working at four major accounting firms in South Korea. Multiple regression models were applied step by step for analysis. In this study, the informal learning of professionals working at four major accounting firms is influenced by various factors of learning motivation, job characteristics, and a supportive learning environment. The detailed analysis results were as follows. Firstly, peer-support showed the most positive effect on task-related knowledge acquisition. Secondly, for adapting to organization and understanding contexts, task autonomy showed the greatest effect. Thirdly, peer-support was found to be the most important factor for relationship formation. Fourthly, for improving self-development ability, learning goal orientation showed to be the most important factor. The various factors facilitated the professional learning by empirical identification. The study presented practical implications for creating an effective informal learning support environment.

Internal Audit Quality: Insights from Audit Committee Members, Senior Management, and Internal Auditors

SUMMARYWe investigate the concept of internal audit function (IAF) quality from a multi-stakeholder perspective through conducting 36 interviews with key IAF stakeholder groups: audit committee members, senior management, internal audit executives, and outsourced internal audit partners from the major accounting firms. We adapt established quality frameworks that suggest quality is a five-dimensional construct (including input, process, output, outcome, and contextual dimensions) to the internal audit context. We find that the various stakeholder groups focus on different quality dimensions in their evaluation of IAF quality. For example, the groups focus on the process dimension (internal audit executives), output dimension (audit committee members and internal audit partners), or outcome dimension (senior management and internal audit partners). We also find that the five dimensions comprise multiple indicators of IAF quality. We conduct six supplementary interviews with external audit partners to compare their insights on IAF quality to the focal IAF stakeholder groups. External auditors evaluate quality via the output dimension after an ex ante assessment focusing on the input dimension. Finally, we contribute to the IAF quality literature by developing a multi-stakeholder IAF quality framework.

The assurance market of sustainability reports: What do accounting firms do?

The assurance of sustainability reports is a relatively new service offered by different providers such as accounting firms and consultants. The percentage of sustainability reports assured and the weight of the four largest accounting firms (Deloitte, EY, KPMG and PWC) in this new market are evolving in time. The purpose of this paper is to contribute to a better understanding of the role each one of the four major accounting firms (Big4) play in this assurance market. Using a generalized linear mixed model in an international sample, our results confirm that each Big4 accounting firm leverages its network of financial audit clients to enter the sustainability assurance market. Despite the global context in which Big4 operate, the choice of a specific Big4 as assurance provider depends on country level factors. We also find significant differences in the industry distribution for each major accounting firm. These results suggest a potential competitive advantage for the Big4 to enter the sustainability assurance market when they are also auditors of the financial statements. Our findings suggest that each Big4 does not act uniquely at a global level when they assure sustainability reports as there are characteristics in the geographical environment which affect this market. Additionally, the differences in market share of each Big4 by industry, may enforce the idea of the connection between financial auditor (a market highly specialized by industry) and the sustainability assuror.

The Role of Auditors in the Recent Nigerian Banking Crisis

In market societies people routinely have to transact with faceless corporations about whom they have little personal knowledge. In such societies external auditing and auditors are promoted as a trust engendering technology and watchdog with the capacity to promote a particular kind of social order. Investors and depositors in a number of banks in Nigeria have lost several billions of Naira due to the lack of implementing qualified audit report theory and practices of accountants and auditors, which has resulted in the distress of a number of banks. This research work has examined the contemporary auditing and the role of accountants and auditing firms in causing the collapse of banks. The paper locates the role of auditors within the broader dynamics of professionalism and the pursuit of profits to argue that major accountancy firms are becoming more and more willing to increase their profits by indulging in anti-social practices that show scant regard for social norms and even legal rules and regulations. Contrary to their claims to be protecting the public interest, accountants and auditors may be partly responsible for cases of distress and the collapse of banks in Nigeria, as they failed to qualify their reports when there were indications of financial difficulties in the banks. There is also evidence to show that auditors have collected large sums in audit and non-audit fees. Such events raise questions about the value of company audits, auditor independence and the quality of audit work. This paper argues that the basic auditing model is flawed since it makes auditors financially dependent on companies. The conventional approach to ‘audit quality’ is also inadequate as it pays little attention to the organizational pursuit of profits and the social

Internal Audit's Role in GHG Emissions and Energy Reporting: Evidence from Audit Committees, Senior Accountants, and Internal Auditors

SUMMARYInternationally, disclosures related to greenhouse gas (GHG) emissions and energy usage have increased dramatically due to trends toward increased sustainability reporting, growing concerns about climate change, and the introduction of new legislation and taxes. Audit committees, management, internal auditors, external auditors, and other stakeholders all have a potential role in relation to GHG disclosures. Our study addresses the role of internal auditors. We conducted 29 interviews with senior audit committee members, senior accountants, in-house internal auditors, and partners specializing in internal audit from the major accounting firms. These interviews allowed us to gain insights into the present role of internal auditors in GHG/energy reporting, the factors explaining internal audit's role, and the future role of internal audit. In addition, audit committee members describe their present involvement in GHG/energy reporting. We consider the consistency of our findings with three corporate governance theories (agency theory, institutional theory, and resource dependence theory). Although our results support the importance of effective monitoring consistent with agency theory, no one theory fully explains our results.

The Structure Of Graduate Tax Programs: Broad-Based Or Concentration In Tax?

Graduate tax curriculums range from highly concentrated in tax to broad-based. This paper examines perceptions of major accounting firms employees regarding their tax, research, management, computer, and communication skills. Perceptions of broad-based graduates did not differ significantly from that of tax-concentrated graduates. Perceived management skills are greater for graduates with courses in a variety of disciplines. Perceived computer stills are lower for graduates with technical noncomputer courses.

Theodoric of Triple-A-Ville, accounting professor: a one-act play for a doctoral seminar

A positivist methodological perspective that emphasises quantitative methods and is incapable of addressing complex social issues overwhelmingly characterises the body of literature published in mainstream accounting journals. The US system of graduate education in accounting is, in large part, responsible for the homogeneity of this paradigm and for the absence of any theoretical creativity and/or methodological innovation in accounting scholarship. Large accounting PhD programs have seized control of research activities by instituting restrictive norms, by creating barriers to intellectual dialogue, by exploiting the reward structures used to influence conformity, and by siphoning financial resources from major accounting firms to fund their mainstream research activities. This paper presents a script – based on an old Saturday Night Live skit – for use in a doctoral seminar as a ‘launching point’ for exploring perspectives other than the mainstream paradigm and poses a series of questions to facilitate discussion among the seminar participants.

Smoke and mirrors: Corporate social responsibility and tax avoidance

The bourgeoning corporate social responsibility literature has paid little attention to organised tax avoidance by companies even though it has real consequences for the life chances of millions of people. Companies legitimise their social credentials by making promises of responsible and ethical conduct, but organisational culture and practices have not necessarily been aligned with publicly espoused claims. This paper draws attention to the gaps between corporate talk, decisions and action, or what may be characterised as organised hypocrisy. Its persistence can become a liability and threaten the welfare of the company, its employees and its executives. The paper provides examples to show how companies, including major accountancy firms, make promises of responsible conduct, but indulge in tax avoidance and evasion. It also shows that the exposure of contradictions between talk and action has yielded negative outcomes.

The External Auditor’s Role in Bank Regulation and Supervision: A Comparative Analysis Between the UK, Germany, Italy and the US (Second/Old Edition)

Up until 1989, there existed “the Big Eight” accountancy firms namely the eight major international accountancy firms, Arthur Young (AY), Ernst & Whinney (EW), Deloitte Haskins & Sells (DHS) ,Touche Ross (TR), Price Waterhouse, Coopers and Lybrand, Arthur Andersen and KPMG. At present, there remain only four; these four comprise of Ernst & Young, Deloitte & Touche, Pricewaterhouse Coopers and KPMG. Four of the Big Eight accounting firms merged to create two firms in 1989. The four firms consisted of Arthur Young (AY) and Ernst & Whinney (EW), which merged to form Ernst & Young (EY), and Deloitte Haskins & Sells (DHS) and Touche Ross (TR), which merged to form Deloitte & Touche (DT). This resulted in the “Big Six”. The merger between Price Waterhouse and Coopers & Lybrand which resulted in Pricewaterhouse Coopers and the Enron debacle which lead to Arthur Andersen being made defunct have resulted in the “the Big Four”. Whilst the existence of the present “Big Four” that is, Pricewaterhouse Coopers, KPMG, Ernst & Young and Deloitte & Touche, occurred mainly as a result of mergers between these accountancy firms, the demise of Arthur Andersen, its role in the collapse of Enron, and the devastating effects on so many lives, cannot be ignored.This publication considers through a comparative analysis of selected jurisdictions, how the external auditor can assist regulators in carrying out their regulatory and supervisory functions. It also considers how regulators could implement their supervisory and enforcement tools in addressing the issue of audit liability.

Evaluating web site quality: the value of a multi paradigm approach

PurposeThe aim of this paper is to benchmark the quality of web sites of major public accounting (PA) firms by seeking the opinions of potential clients and analysing the data to establish best quality practice for PA web sites.Design/methodology/approachThe study was conducted in a controlled laboratory setting in which potential clients of PA firms used a modified version of the WebQual™ questionnaire to evaluate the web sites of six leading PA firms. Design science provided the guiding paradigm but its weaknesses were ameliorated by drawing on constructivism and pragmatism to provide context and practicality for the research.FindingsThe study established web site quality profiles of six leading PA firms. The interpretation of findings is influenced by axiology and rhetoric and are both unbiased (determined by statistical means) and biased (influenced by the researchers' values). Data analysis clearly showed that the usability construct reflected the highest quality at all levels while riskiness was the construct with the lowest quality level.Research limitations/implicationsThe use of multiple paradigms (design science, constructivism, and pragmatism) produced the desired insights to determining web site quality issues for the PA sector for the key reason that they complemented each other rather than being in conflict. However, the usefulness of the approach is dependent on follow‐up research to confirm the findings with the PA firms concerned and to monitor any action taken by them in response to the study's findings.Practical implicationsBy benchmarking a number of PA web sites, practices within the sector will be able to learn from the findings and be able to improve the quality of their web sites thereby retaining the competitive edge to meet their clients' needs.Originality/valueThe paper reflects on the value of the multi paradigm approach to web site quality research design and conduct and discussion of findings. It was concluded that design science provided the necessary research rigour while the other two paradigms enabled the researchers to bring their worldviews on ontology, epistemology, axiology and rhetoric to the research.

Recent Trends in Audit Report and Earnings Announcement Lags

SYNOPSIS: The Securities and Exchange Commission introduced accelerated filing requirements for corporate 10-K and 10-Q filings in 2003. The major accounting firms and some companies expressed concerns about the acceleration, arguing that other changes in financial reporting and disclosure requirements, corporate governance, and auditing standards would make it difficult to meet the shorter deadlines while maintaining good quality reporting. Using longitudinal samples of companies for the period 2001–2006, we examine two lags in the corporate reporting process: the audit report lag (the number of days between the fiscal year-end and the audit report date), and the earnings announcement lag (the number of days between the fiscal year-end and the earnings announcement date). Our results indicate that both lags increased significantly in the two-year period 2001–2002 prior to the introduction of the accelerated filing requirements and in the period 2003–2006 when the new filing requirements were in effect. Furthermore, when we examine the sample of companies for which both the audit lag and earnings announcement lags are available, we find that the likelihood that companies announced earnings prior to the audit report date increased considerably over the period 2001–2006, but particularly during 2004–2006 when Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) was in effect. Thus it appears that an unintended consequence of recent policy changes is that companies are less likely to wait for completion of their audits to announce earnings. We also examine the quality of reporting (measured by absolute discretionary accruals and quality of accruals) for the sample period. We find that long audit report lags (or 10-K filings lags) were not associated with lower quality of earnings or accruals (except for a mild effect in 2004), providing no support for the concern that companies that have to rush to meet the deadlines may suffer a loss of reporting quality. However, when we examine potential reporting quality effects of early earnings announcements, we find some mild evidence that for those companies that made earnings announcements several days in advance of completion of their audits, the quality of earnings/accruals was lower in some years during the period 2003–2006.

Recent Trends in Audit Report and Earnings Announcement Lags

The Securities and Exchange Commission introduced accelerated filing requirements for corporate 10-K and 10-Q filings in 2003. The major accounting firms and some companies expressed concerns about the acceleration, arguing that other changes in financial reporting and disclosure requirements, corporate governance, and auditing standards, would make it difficult to meet the shorter deadlines while maintaining good quality reporting. Using longitudinal samples of companies for the period 2001-2006, we examine two lags in the corporate reporting process: the audit report lag (the number of days between the fiscal year end and the audit report date), and the earnings announcement lag (the number of days between the fiscal year end and the earnings announcement date). Our results indicate that both lags increased significantly in the two-year period 2001-2002 prior to the introduction of the accelerated filing requirements and in the period 2003-2006 when the new filing requirements were in effect. Further, when we examine the sample of companies for which both the audit lag and earnings announcement lags are available, we find that the likelihood that companies announced earnings prior to the audit report date increased considerably over the period 2001-2006, but particularly during 2004-2006 when Section 404 of the Sarbanes-Oxley Act was in effect. Thus it appears that an unintended consequence of recent policy changes is that companies are less likely to wait for completion of their audits to announce earnings. We also examine the quality of reporting (measured by absolute discretionary accruals and quality of accruals) for the sample period. We find that long audit report lags (or 10-K filings lags) were not associated with lower quality of earnings or accruals (except for a mild effect in 2004), providing no support for the concern that companies that have to rush to meet the deadlines may suffer a loss of reporting quality. However, when we examine potential reporting quality effects of early earnings announcements, we find some mild evidence that for those companies that made earnings announcements several days in advance of completion of their audits, the quality of earnings/accruals was lower during some years during the period 2003-2006.

The Audit Industry: World's Weakest Oligopoly?

The world's audit oligopoly is composed of four accounting firms: PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte Touche Komatsu (the Big 4). These firms are in a strong position in that they audit the financial statements of nearly all the global public companies in the world and, arguably, are the only audit firms able to do so. They are huge, privately-owned, international networks with robust revenues, vast resources, and expertise. Yet they are heavily regulated by governments, and they are subject to massive lawsuits when investors and creditors suffer large losses due to fraud or error; these are their major weaknesses. Since the dual shocks of the collapse of Arthur Andersen (reducing the Big 5 to 4) and the enactment of stringent regulations by the U.S. Congress in 2002 in reaction to corporate accounting scandals, there is great concern in the financial community that another company in the oligopoly could be forced out of business, further reducing the choice of auditors for multinational corporations and causing disruptions in the marketplace. This paper reviews the effects of concentration on competition in the market for audits of major multinational corporations, as well as the effects on audit fees, audit quality, and the regulatory environment. It observes that competition is far less intense than in earlier years and that regulatory authorities are reluctant to take severe disciplinary actions against audit firms, but that the industry remains vulnerable to legal challenge. Global public companies will continue to face limited choice of auditors until smaller competitors or new competitors can build viable networks and reputations for high quality audits. The paper examines barriers to market entry and comments on proposals to promote greater competition, including liability limitations. It also reports on anticompetitive practices of major accounting firms in the past and the need for regulatory authorities to maintain constant vigilance to avoid any recurrence. Finally, responding to the question posed in the title, the paper concludes that considering the industry's market dominance, the relaxation of punitive actions by regulatory authorities and the availability of some forms of liability limitation, the audit industry may not be the ideal candidate for weakest oligopoly in the world.

Globalization and its discontents

PurposeThe purpose of this paper is to seek to illuminate some of the dynamics of globalization that enable capital to advance its interests.Design/methodology/approachThe paper uses theories of globalization focusing upon the “race‐to‐the‐bottom”. Such theories draw attention to the way major businesses are using their power to secure advantages, often by playing‐off one nation state against another. Increasingly, offshore financial centres (OFCs) are becoming key players in this race. The paper uses a case study relating to the enactment of limited liability partnership (LLP) in Jersey, a UK Crown Dependency. The legislation was financed and developed by the UK firms, Price Waterhouse and Ernst & Young in collaboration with a network of advisers.FindingsThe paper sheds light on the resources deployed by major accountancy firms to secure conditions necessary for the smooth accumulation of private wealth and power. Accountancy firms used OFCs or microstates to reposition the state‐capital relationship in globalization and reconfigure the UK auditor liability laws. The paper also highlights the importance of the state to capital and globalization.Research limitations/implicationsIn common with major capitalist enterprises, accountancy firms rarely provide background material to explain how they advance their interests. Inevitably, this limits the analysis. Nevertheless, the case study shows some trajectories that have enabled accountancy firms to advance their economic interests.Practical implicationsThe paper shows that accountancy firms are able to use novel tactics to advance their interests and that national regulation cannot easily be understood without consideration of the wider international context.Originality/valueAccounting researchers have rarely focused upon the use of offshore financial centres by major accountancy firms to advance their interests. It also shows that the local and the global are intertwined.

Enterprise culture and accountancy firms: new masters of the universe

PurposeThis paper aims to argue that enterprise culture is producing negative effects. Companies and major accountancy firms are increasingly willing to increase their profits through indulgence in price fixing, tax avoidance/evasion, bribery, corruption, money laundering and practices that show scant regard for social norms and even laws.Design/methodology/approachThe paper locates business behaviour within the broader dynamics of capitalism to argue that hunger for higher profits at almost any cost is not constrained by rules, laws and even periodic regulatory action.FindingsThe paper uses publicly available evidence to show that accountancy firms are engaged in anti‐social behaviour. Evidence is provided to show that in pursuit of higher profits firms have operated cartels, engaged in tax avoidance/evasion, bribery, corruption and money laundering.Practical implicationsThe paper seeks to bring the anti‐social activities of accountancy firms under scrutiny and thus extend possibilities of research in social responsibility, ethics, accountability, claims of professionalism, social disorder and crime.Originality/valueIt is rare for accounting scholars to examine predatory practices of accounting firms. It shows that predatory practices affect a variety of arenas and stakeholders.

University Accounting Curricula: The Perceptions of an Alumni Group

Many of the problems associated with accounting education could be due to at least two reasons: inadequate attention given to the design of accounting programmes, and the narrow view of stakeholder approach adopted in examining education issues. The existing literature mainly focuses on students' perception about issues such as teaching quality, alumni experience in major accounting firms, and so on. This paper deals with the design of accounting programmes, and proposes to ascertain the views of an important stakeholder group (i.e. alumni) on this issue. The findings of this study give credence to some of the generally held views, e.g. that it is no longer appropriate for tertiary education providers to adopt a one-size-fits-all approach. However, in some other areas, the findings represent a stark contrast to the views on certain issues promulgated by the professional bodies in New Zealand and overseas including the USA, (for example, the issue of appropriate proportions of accounting, business and liberal studies in an accounting programme). Notably, the respondents in general placed a low importance on auditing as part of an education programme. Further, in terms of the emphases that should be placed in an accounting programme, contrary to the endorsement in the literature, ‘work experience’ was not considered as important as other areas of emphasis, (e.g. global perspective, local perspective, professionalism and social and environmental perspective).