Audit firms as networks of offices

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Seavey, Scott E.
Imhof, Michael J.
Westfall, Tiffany J.

Scott E. Seavey, Michael J Imhof, and Tiffany J. Westfall (2018) Audit Firms as Networks of Offices. AUDITING: A Journal of Practice & Theory: August 2018, Vol. 37, No. 3, pp. 211-242


Prior audit research suggests that most, if not all, audit quality can be explained at the office level. However, the question remains of whether office-level audit quality is contingent on how individual offices relate to the firm as a whole. Motivated by theories of knowledge management, organizational learning, and networks, we posit that individual offices are connected to their audit network through partner knowledge sharing and oversight, which impact office-level audit quality. We interview Big 4 audit partners and learn that knowledge sharing between partners in different offices is common and intended to aid in the provision of audit services. Using network connectedness to proxy for knowledge sharing and oversight between offices of the same firm, we document that more connected offices are associated with fewer client restatements and lower discretionary accruals. We additionally find that network effects are magnified when accounting treatments are more complex and require greater auditor judgement.

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