The auditor reputation cycle: A synthesis of the literature

Abstract

The auditor reputation hypothesis states that auditors conduct high‐quality audits to build a positive reputation in the marketplace so that they can retain clients and earn fee premiums. We consolidate the dispersed literature on this hypothesis and introduce a framework that presents auditor reputation as a cycle. The overall conclusions support the predictions of our framework regarding reputation as an incentive for audit quality. However, challenges remain in isolating and quantifying the impact. We observe moderating factors on both the supply and demand sides. We also find that existing research has emphasized certain aspects of our framework while addressing others more sparsely. Relatively little is known about how audit firms earn their reputation or how they rebuild it after an audit failure. Mixed evidence in some areas, along with research gaps in the framework, provides opportunities for future research on auditor reputation. Our framework can guide these endeavors.

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