Does an Auditor's Reputation Matter?

The article seeks to establish whether an auditor’s reputation matters. In this case, it analyses a scandal that happened in Germany, which involved ComROAD AG and KPMG. Notably, this country protects audit firms from shareholders’ litigation. According to Weber Willenborg and Zhan, (2008), audit firms risks to lose customers when they provide substandard audits. For instance, the scandal, which involved fictitious revenues made KPMG suffer high attrition as its customers changed audit firms. Consequently, it offered to re-audit its Neuer market-traded clients to control the damage to its reputation. Hence, the market reaction shows that investors significantly value the status of an audit firm. Therefore, it is critical for audit firms to provide high-quality services to evade market discipline. 

Reference 

Weber, J., Willenborg, M., and Zhan, J. (2008). Does Auditor Reputation Matter? The Case of KPMG Germany and ComROAD AG. Journal of Accounting Research Vol. 46 No. 4 September, 941-972.