Common auditors in mergers and acquisitions: Post‐acquisition financial reporting quality and audit fees

Abstract Prior research documents that mergers and acquisitions result in significant financial reporting risks. In this article, we examine whether acquirers that share a common auditor with the target experience higher post‐acquisition financial reporting quality (FRQ) and reduced audit fees. We find that same‐office, but not different‐office, common auditors are associated with improved post‐acquisition FRQ, as evidenced by a decreased likelihood of misstatement, lower F ‐score, and a lower likelihood of meeting or just beating analyst forecasts. We also find that same‐office common auditors are associated with a lower percentage change in audit fees. In additional tests, we find that these inferences are robust to limiting the sample to acquirers with multiple acquisitions or to acquirers and targets with no auditor switches in the prior 3 years. Together, our findings suggest that same‐office common auditors facilitate knowledge transfer about the target and provide important post‐acquisition benefits.

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Publication Details

Journal
Contemporary Accounting Research
Published
2025-09-09
DOI
https://doi.org/10.1111/1911-3846.70000
Primary Topic
Auditing, Earnings Management, Governance
Type
article
Field-Weighted Citation Impact
0.00
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article

Common auditors in mergers and acquisitions: Post‐acquisition financial reporting quality and audit fees

Roy Schmardebeck, Xi Ai, Linda A. Myers
1 links
Contemporary Accounting Research
Auditing, Earnings Management, Governance
article

Common auditors in mergers and acquisitions: Post‐acquisition financial reporting quality and audit fees

Roy Schmardebeck, Xi Ai, Linda A. Myers
article en

Abstract

Abstract Prior research documents that mergers and acquisitions result in significant financial reporting risks. In this article, we examine whether acquirers that share a common auditor with the target experience higher post‐acquisition financial reporting quality (FRQ) and reduced audit fees. We find that same‐office, but not different‐office, common auditors are associated with improved post‐acquisition FRQ, as evidenced by a decreased likelihood of misstatement, lower F ‐score, and a lower likelihood of meeting or just beating analyst forecasts. We also find that same‐office common auditors are associated with a lower percentage change in audit fees. In additional tests, we find that these inferences are robust to limiting the sample to acquirers with multiple acquisitions or to acquirers and targets with no auditor switches in the prior 3 years. Together, our findings suggest that same‐office common auditors facilitate knowledge transfer about the target and provide important post‐acquisition benefits.

Contemporary Accounting ResearchVol. 42(4)
University of Louisville (US), University of Tennessee at Knoxville (US)
Openalex Percentile: Top 64%
Auditing, Earnings Management, Governance
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