Are Big Four Audits in ASEAN Countries of Higher Quality than Non-Big Four Audits?

Asia-Pacific Journal of Accounting and Economics, Vol. 11, No. 2, December 2004

Posted: 9 Aug 2004

See all articles by Inder K. Khurana

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

K. K. Raman

The University of Texas at San Antonio

Abstract

We investigate whether reputation concerns provides sufficient incentive for Big Four auditors to provide higher quality audits in ASEAN (Association of South East Asian Nations) countries where litigation exposure is low or nonexistent. We proxy audit quality based on the quality of reported earnings (earnings conservatism) to examine whether Big Four auditors provided higher quality audits (relative to non-big Four auditors) during 1990-96. To neutralize the potential confounding effects of cross-border differences, we investigate the relative quality of Big Four vs. non-Big Four audits within each country separately so that each country serves as its own control.

Our results suggest that although both Big Four and non-Big Four auditees report conservative earnings in all countries, only in the US do Big Four auditees report more conservative earnings than non-Big Four auditees. Thus, although the World Bank and UNCTAD (1999) did not express concerns about Big Four audit quality in emerging markets until 1999, the evidence suggests that the Big Four were not providing higher quality audits in ASEAN countries even prior to the 1997 Asian financial crisis. Our findings are interesting in the context of the ongoing globalization of capital markets in which cross-border investors in emerging markets, separated from corporate management not only geographically but oftentimes culturally and linguistically, are presumed to rely on a brand name Big Four audit to provide enhanced assurance on financial statements.

Suggested Citation

Khurana, Inder and Raman, K. K., Are Big Four Audits in ASEAN Countries of Higher Quality than Non-Big Four Audits?. Asia-Pacific Journal of Accounting and Economics, Vol. 11, No. 2, December 2004. Available at SSRN: https://ssrn.com/abstract=573401

Inder Khurana (Contact Author)

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

K. K. Raman

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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