The Scale and Scope of the Client Portfolio and Audit Pricing at the Individual Auditor Level: Evidence from China

57 Pages Posted: 29 Jun 2017

See all articles by Juan Mao

Juan Mao

University of Texas at San Antonio - Department of Accounting

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Guochang Zhang

University of Hong Kong

Date Written: June 28, 2017

Abstract

This study examines the relation between the scale and scope of an individual auditor’s client portfolio and audit pricing to better understand how auditors of heterogeneous characteristics are differentiated in the audit market. Using a sample from the Chinese market for the period 2001-2010, where the personal identities of signing auditors are publicly disclosed, we find that audit price charged by an individual auditor is positively related to the scale of his/her client portfolio, measured in terms of either total audit fees or the number of clients. However, the industry scope (diversity) of the client portfolio attenuates this positive relation between portfolio scale and pricing. Further analyses indicate that auditors of higher ability and reputation tend to have larger client scales and wider client scopes, and that scale is not related to audit delays whereas industry scope is positively related to delays. Taken together, our results suggest that at the individual auditor level, the scale of the client portfolio conveys the auditor’s ability (type), and given the scale, the industry scope of clients signals the auditor’s workload. Finally, our findings are mostly confined to auditors from non-Big N audit firms.

Keywords: audit pricing, individual auditor, client portfolio, scale, industry scope

JEL Classification: M42

Suggested Citation

Mao, Juan and Qi, Baolei and Zhang, Guochang, The Scale and Scope of the Client Portfolio and Audit Pricing at the Individual Auditor Level: Evidence from China (June 28, 2017). Available at SSRN: https://ssrn.com/abstract=2993806 or http://dx.doi.org/10.2139/ssrn.2993806

Juan Mao

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8305 (Phone)

Baolei Qi (Contact Author)

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Guochang Zhang

University of Hong Kong ( email )

KK Leung Building
Faculty of Business and Economics
Hong Kong
+852 3917 1076 (Phone)

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