The Impact of Firm Identity on Accountants’ Error Reporting Decisions: An Experimental Investigation

Recent regulatory and professional developments have increased the frequency with which public accountants work and interact with professionals from other accounting firms. We posit that competitive pressures are particularly salient when clients retain accountants from different firms to perform audit, tax, and/or consulting services, and examine whether the disclosure decisions of professional accountants could be biased in a manner consistent with these pressures. We conduct two experiments in settings where professional services are commonly split among different firms: the provision of non-audit tax services and the completion of a group audit. We find that, when clients retain different accounting firms to perform professional services, accountants share information about possible financial statement errors in ways that protect their competitive advantage over their rivals, although the specific effects differ between the audit and tax settings. Our results have important implications for financial reporting quality and provide new insights regarding the effects of interfirm collaboration.