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Was Andersen Less than its Peers?: A Comparative Analysis of Audit Quality
Krishna R Kumar, The George Washington University
Lucy Lim, The George Washington University
ABSTRACT. Andersen’s collapse was followed by considerable debate as to whether its audit failures before the collapse were isolated events, or manifested a pervasive firm culture. We compare Andersen’s audit quality across a large sample of clients with other Big-Five audit quality using three types of analyses. First, we posit that audit quality impacts earnings quality, and investigate Andersen client earnings response coefficients (ERCs) versus ERCs for other Big-Five clients. Second, we posit that audit quality impacts the efficacy of going-concern (GC) opinions in predicting bankruptcy, and compare Andersen’s GC opinions in such prediction with opinions of the other Big-Five. Third, we posit that audit quality impacts auditor propensity to issue a GC opinion, and investigate Andersen’s likelihood of issuing such opinions relative to other auditors. We find that Andersen’s audit quality is no less than other Big-Five auditors’ audit quality in the years leading up to its failure.
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