How Can Small International Accounting Firms Improve Audit Quality? The Role of Accounting Associations and Networks

50 Pages Posted: 25 Jun 2019 Last revised: 6 Apr 2020

See all articles by Xi Ai

Xi Ai

University of Tennessee - Haslam College of Business

Lauren M. Cunningham

University of Tennessee - Haslam College of Business

Xiao Li

Central University of Finance and Economics (CUFE) - School of Accountancy

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Date Written: April 1, 2020

Abstract

Commonly examined attributes of audit quality in international markets include accounting firm size (proxied for by Big 4 membership) and industry expertise, which is highly correlated with accounting firm size. In this study, we focus on an important but often overlooked sector of the international audit market: non-Big 4 accounting firms. Specifically, we examine whether membership in an international accounting association or network (AAN) allows these firms to provide higher audit quality. Using a difference-in-differences research design and data from 24 countries, we find that audit quality improves after small international accounting firms join an AAN. We also find that AAN audit quality is not significantly different from Big 4 audit quality when audit clients are similarly sized. These findings have important implications for accounting firms, audit committees, regulators, and investors in international markets.

Keywords: international audit markets; accounting associations; accounting networks; audit quality; audit pricing

JEL Classification: M41, M42

Suggested Citation

Ai, Xi and Cunningham, Lauren M. and Li, Xiao and Myers, Linda A., How Can Small International Accounting Firms Improve Audit Quality? The Role of Accounting Associations and Networks (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3406206 or http://dx.doi.org/10.2139/ssrn.3406206

Xi Ai

University of Tennessee - Haslam College of Business ( email )

453 Haslam Business Building
Knoxville, TN 37996-4140
United States

Lauren M. Cunningham (Contact Author)

University of Tennessee - Haslam College of Business ( email )

Accounting and Information Management
603 Stokely Management Center
Knoxville, TN 37996
United States

Xiao Li

Central University of Finance and Economics (CUFE) - School of Accountancy ( email )

Beijing
China

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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