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Safayat Hossain, assistant professor of accounting, recently had a research article accepted in European Accounting Review, one of the top journals in the field.
The article is titled, “The Effects of Auditor-Level Cybersecurity Breaches on Auditor-Client Relationships,” and explores the significant impacts of cybersecurity breaches on audit firms, particularly within the Big 4. The study reveals that such breaches lead to:
- Increased Auditor Turnover: Clients of breached audit firms are more likely to switch to non-breached auditors, with the likelihood rising if the breach occurred within the last 3–5 years.
- Changes in Audit Quality: Breached auditors become less conservative, allowing more discretion in financial reporting during the breach year. However, audit quality generally returns to standard levels in subsequent years.
- Higher Audit Fees: To offset reputational damage and bolster security, breached firms often raise audit fees, highlighting the economic costs of data breaches.
This research sheds light on how cybersecurity incidents challenge trust in the auditor-client relationship and emphasizes the importance of robust cybersecurity measures in the accounting profession.
