Do accounting firms change strategy through office managing partner appointments? Evidence from the U.S

Abstract

Consulting services have returned to prominence among Big 4 accounting firms in the United States. I find that this shift did not happen unexpectedly, but as a result of changes in audit firm leadership and culture. Specifically, I document that the U.S. Big 4 firms have recently appointed an increasing percentage of advisory office managing partners (OMPs). Using a generalized difference-in-differences design, I find an increase in non-audit services (NAS) and decrease in audit quality among audit clients following advisory OMP appointments, particularly after an audit predecessor. Additional analyses suggest that consulting firm acquisitions, office-level NAS, and non-audit hiring practices also increase following advisory OMP appointments. Importantly though, I find that the NAS and audit quality effects following advisory OMP appointments are stronger when these other initiatives have not yet materialized in the office and appear somewhat muted when these shifts have already occurred. Consistent with expectations, supplemental tests reveal that the effects of advisory OMP appointments are more pronounced in small audit offices and when clients purchase more NAS or have weaker audit committee oversight. Overall, these results suggest that OMP appointments play a prominent role in setting culture and executing strategy within an audit office.