Big 4 Office Political Connections and Client Restatements

Accounting research seems to agree that politically connected firms have lower accounting quality and are subject to lower enforcement by the SEC. In this paper, I focus on the political connections of Big 4 auditors with members of committees directly responsible for auditor regulation and oversight and investigate the relation between auditor political connections and the restatement frequency of their clients at the audit office level. I report that clients of politically connected offices are less likely to restate their earnings. However, in sharp contrast to the firm- specific results, I find no evidence that this relation reflects lower enforcement by regulatory agencies. I argue that politically connected auditors deliver superior audit quality to their clients due to increased reputation considerations and network- related information and knowledge acquisition benefits. Nevertheless, the negative relation between audit office political connections and client restatements does not appear to persist for politically connected clients. That is, precisely for those audit engagements for which politically connected auditors are most likely to compromise their independence.

This seminar is organised by the Erasmus Accounting Research Group.