Did the 2005 deferred prosecution agreement adversely impact KPMG’s audit practice?

Matthew Baugh, Jeff P. Boone, Inder K. Khurana, K. K. Raman

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


We examine the consequences of misconduct in a Big 4 firm’s nonaudit practice for its audit practice. Specifically, we examine whether KPMG’s audit practice suffered a loss of audit fees and clients and/or a decline in factual audit quality following the 2005 deferred prosecution agreement (DPA) with the Department of Justice for marketing questionable tax shelters. We find little evidence that the DPA adversely impacted KPMG’s audit practice by way of either audit fees or the likelihood of client gains/losses, suggesting little or no harm to KPMG’s audit reputation. We also find that the DPA had no effect on the firm’s factual audit quality, even for those audit clients that dropped KPMG as their tax service provider. Collectively, our findings suggest that there was no spillover effect from the DPA to KPMG’s audit practice.

Original languageEnglish (US)
Pages (from-to)77-102
Number of pages26
Issue number1
StatePublished - Feb 2019
Externally publishedYes


  • Audit fees
  • Audit quality
  • Big 4 firms
  • Client gains/losses
  • DOJ/KPMG deferred prosecution agreement
  • Reputational loss

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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