Audit Office Size, Audit Quality and Audit Pricing

Auditing: A Journal of Practice and Theory, Forthcoming

42 Pages Posted: 31 Aug 2007 Last revised: 17 Apr 2013

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Jeong-Bon Kim

City University of Hong Kong

Chansog (Francis) Kim

The State University of New York at Stony Brook

Yoonseok Zang

Singapore Management University - School of Accountancy

Date Written: December 3, 2009

Abstract

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.

Keywords: Audit office, Office size, Audit quality, Audit pricing

JEL Classification: M49, M41, L84

Suggested Citation

Choi, Jong and Kim, Jeong-Bon and Kim, Chansog (Francis) and Zang, Yoonseok, Audit Office Size, Audit Quality and Audit Pricing (December 3, 2009). Auditing: A Journal of Practice and Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1011096 or http://dx.doi.org/10.2139/ssrn.1011096

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Chansog (Francis) Kim

The State University of New York at Stony Brook ( email )

College of Business
Stony Brook, NY 11794
United States
5163040037 (Phone)
631-632-9412 (Fax)

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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