Audit Office Size, Audit Quality and Audit Pricing
Seoul National University - College of Business Administration
City University of Hong Kong
Chansog (Francis) Kim
The State University of New York at Stony Brook
Singapore Management University - School of Accountancy
December 3, 2009
Auditing: A Journal of Practice and Theory, Forthcoming
Using a large sample of U.S. audit client firms over the period 2000-2005, this paper investigates whether and how the size of a local practice office within an audit firm (henceforth, office size) is a significant, engagement-specific factor determining audit quality and audit fees over and beyond audit firm size at the national level and auditor industry leadership at the city or office level. For our empirical tests, audit quality is measured by unsigned abnormal accruals, and the office size is measured in two different ways: one based on the number of audit clients in each office and the other based on a total of audit fees earned by each office. Our results show that the office size has significantly positive relations with both audit quality and audit fees even after controlling for national-level audit firm size and office-level industry expertise. These positive relations support the view that large local offices provide higher-quality audits, compared with small local offices and that such quality differences are priced in the market for audit services.
Number of Pages in PDF File: 42
Keywords: Audit office, Office size, Audit quality, Audit pricing
JEL Classification: M49, M41, L84
Date posted: August 31, 2007 ; Last revised: April 17, 2013
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