Who is this research for? CFOs, audit committee members, corporate accounting leaders, and governance professionals responsible for financial reporting and audit quality.
Top Answer
New research suggests that negative news about one audit firm may prompt auditors at peer firms to pay greater attention to their own engagements, helping limit the spread of low-quality audit practices. The effect appears particularly strong for smaller clients, where auditors may have more opportunity to adjust their work, and in areas with greater local news intensity. The findings indicate that media scrutiny can create reputational pressure beyond the firm directly involved.
Executive Summary
New research from Dr. Caleb Rawson and Dr. Stephen Rowe (William Dillard Department of Accounting, Sam M. Walton College of Business) with Dr. Elizabeth N. Cowle (Colorado State University) examines whether negative news about peer audit firms changes how other auditors behave. The researchers focus on a phenomenon known as audit-quality “contagion.” Prior research has found that when one company experiences an audit failure, other companies served by the same audit office or operating in the same geographic market can face a greater likelihood of similar problems. The question for researchers was whether negative media attention could interrupt that pattern.
The researchers examined major national news coverage involving the Big Four audit firms and U.S. public companies audited by those firms from 2007 through 2022. Their primary sample included 24,894 client-year observations. They compared negative peer-firm news with subsequent financial restatements among clients connected through the same audit office or metropolitan area.
Their findings suggest that negative coverage of peer audit firms can mitigate the spread of low-quality audits. The relationship was particularly evident for smaller companies, where auditors may have more flexibility to adjust audit scope and testing, and in markets with higher local news intensity, where reputational pressures may be more visible. Following negative news about peers with indications of low audit quality, auditors showed signs of increased attention, including longer audit delays and a greater likelihood of late financial statement filings.
The broader implication is that the news media may function as a form of informal oversight, making potential failures and their reputational consequences visible enough to influence professional behavior before formal regulators intervene.
Expert Insights: What should leaders know about media scrutiny and audit quality?
How should audit leaders respond when a competing firm faces negative national news coverage?
Dr. Stephen Rowe notes: “When competing firms face negative news coverage, it is important for audit leaders to evaluate their own audit engagements to ensure that similar conditions don’t exist within their firm. Interviews that we had with leaders at audit firms (summarized in the paper) confirmed that most firms pay attention to negative audit news and have processes in place to ensure that any risks highlighted by the negative news coverage of other firms are identified and addressed within their firm.”
→ Takeaway: Treat a competitor’s negative news as a prompt to identify and address similar risks within your own audit engagements.
What should CFOs ask their auditors after a major audit failure makes headlines?
Dr. Stephen Rowe explains: “After an audit failure makes headlines, CFOs should ask their auditor to explain the auditor's understanding of the issues involved and to what extent those issues could be present within their company. CFOs should also use this opportunity to seek the auditor’s input as to the areas of greatest risk within their company’s audit, and understand how those risks are being mitigated.”
→ Takeaway: Use high-profile audit failures to start a conversation with your auditor about whether similar issues exist and how your company’s greatest audit risks are being addressed.
Why might media scrutiny influence auditor behavior differently from formal regulatory oversight?
Dr. Stephen Rowe notes: “Formal regulatory oversight has a very important role within the financial reporting environment; however, the news media has direct influence over how people view audit firms, and this influence over a firm's public reputation, on which its value is ultimately based, makes it unique from formal regulators.”
→ Takeaway: Media scrutiny can create a distinct form of accountability by putting an audit firm’s public reputation directly at risk.
What can business leaders outside auditing learn from how auditors respond to competitors’ public failures?
Dr. Stephen Rowe explains: “Our research highlights how attentive business leadership can use information about competitors to improve their own processes and outputs, a quality that is important for leadership beyond accounting. High-quality leaders should gather information and apply it within their organizations to make their teams more effective, and the media's investigative activities provide a valuable source of information that should not be overlooked or discounted, especially when it pertains to the competition.”
→ Takeaway: Treat competitors’ public failures as opportunities to examine your own organization and improve before similar problems emerge.
In summary, Dr. Stephen Rowe adds, “Our paper is framed within the audit setting about what auditors are already doing (to some extent). The real ‘call to action’ from a public policy perspective is more within the journalism and news media areas. There has been a drastic decline in local journalism over the past 20 years, and our paper demonstrates that this is likely to be detrimental to audit quality. With the decline of local journalism there is a very real concern about the loss of community oversight. Our findings suggest that a robust press is a vital pillar of capital market governance. In regions with higher local news intensity, the media's spotlight is especially powerful in keeping auditors accountable, ultimately resulting in cleaner financial reporting.”
Link to the Original Research
Published in Review of Accounting Studies (2026)
Frequently Asked Questions
Does negative media coverage improve audit quality?
The research suggests that certain kinds of negative media coverage may contribute to improved audit quality in specific circumstances. The study finds that negative news involving peer audit firms mitigates the spread of low-quality audits within audit offices and metropolitan areas. The researchers interpret this pattern as evidence that negative coverage heightens auditors’ perceptions of reputational risk and encourages greater attention to audit quality. The finding should not be interpreted to mean that all negative news improves audits. The researchers found that nonnegative peer news did not produce the same effect.
What is audit-quality contagion?
Audit-quality contagion refers to the tendency for low-quality audit practices or outcomes to be associated with other audits connected through professional or geographic networks. In this study, the researchers examine contagion among clients served by the same audit office and among clients located in the same metropolitan area but audited by different firms. They find evidence that previous restatements can be associated with subsequent restatements among connected companies. Negative media coverage of peer auditors appears to reduce this effect.
Why would news about another audit firm affect an auditor?
Reputation is an important asset for audit firms. Negative coverage of a competing auditor can make the consequences of an audit failure more visible, even when another firm is not directly involved. The study suggests this increased awareness can prompt auditors to pay greater attention to their own engagements. Conversations the researchers conducted with current and former Big Four professionals also indicate that auditors monitor high-profile issues and may reconsider risks or procedures when problems elsewhere in the profession attract national attention.
When does negative peer news have the greatest effect on audit quality?
The study finds that the relationship is particularly evident among smaller audit clients and in locations with higher local news intensity. The researchers suggest auditors have greater opportunity to make observable adjustments to audits of smaller companies, while stronger local news environments may amplify reputational pressure. These findings indicate that media scrutiny does not necessarily affect every audit engagement equally. The surrounding client and information environment can influence how strongly auditors respond to negative news involving their peers.
