Do supply chain auditors compromise? Evidence from the association of supplier aggressive revenue management and major customer dependence

Hsihui Chang, Hsin-Chi Chen, Jengfang Chen, Kenneth Reichelt

Research output: Contribution to journalArticle

Abstract

Our study examines whether aggressive revenue management by a supplier is greater when the supplier and their major customer engage the same office-level auditor, and when significant purchases are made by the major customer from the supplier. We posit that the auditor is more accommodating to clients who are jointly audited by the same office-level auditor because of the implicit threat of losing not just the supplier client but also the major customer client. The threat arises from the potential loss of synergies of a jointly planned audit engagement, when significant purchases are made by the major customer. We find that income-increasing discretionary revenue is positively associated with the major customer’s percentage of purchases from the supplier when the same office-level auditor is engaged by the supplier and their major customer. We fail to find a statistically significant association when they engage a different office-level auditor or a different audit firm. Our findings provide evidence that office-level auditors tolerate greater aggressive revenue management when they have clients who are partners in the same supply chain, and when greater audit synergies are at stake. In addition, our results are partly explained by supplier clients who have interlocking directors with major customers and significant influence.
Original languageEnglish
Pages (from-to)639-666
Number of pages28
JournalJournal of Accounting Auditing and Finance
Volume34
Issue number4
Early online date16 Apr 2018
DOIs
Publication statusPublished - Oct 2019

Keywords

  • aggressive revenue management
  • equity investments
  • interlocking directors
  • major customers
  • supply chain

Fingerprint Dive into the research topics of 'Do supply chain auditors compromise? Evidence from the association of supplier aggressive revenue management and major customer dependence'. Together they form a unique fingerprint.

Cite this