دانلود رایگان مقاله بررسی اندازه موسسه حسابرسی

abstract

While prior literature documents that Big 4 auditors provide higher quality audits, recent evidence suggests that these differences are due to client characteristics (Lawrence, Minutti-Meza, & Zang, 2011). Evidence on the audit quality of mid-tier auditors is mixed (Boone, Khurana, & Raman, 2010; Cassell, Giroux, Myers, & Omer, 2013). This study investigates the audit quality of small auditor firms (i.e., those with 100 or fewer). Specifically, we examine the relationship between earnings manipulations and the use of small audit firms, controlling for client characteristics using propensity score matching. We find that small audit firms are less able to constrain managers' opportunistic use of discretionary accruals. However we find no evidence that small audit firms are associated with real activity manipulation. By investigating a specific group of audit firms that are the smallest in the audit market, this study extends our understanding of the role of audit firm size in audit quality.

5. Conclusion

Smaller audit firms have attracted limited attention both in practice and in academic research since PCAOB inspections were implemented. This paper investigates the role of small audit firms on earnings management. Specifically, this paper examines what types of clients choose small audit firms, and whether small audit firms have less ability to constrain managers' opportunistic behavior. We find that the choice of small audit firms is associated with a higher level of earnings manipulation, when measured by accruals management. However, we find no evidence that the use of small audit firms is associated with a higher level of real activity manipulations. DeAngelo (1981) argues that larger audit firms have “more to lose” if they fail to report a breach. Since DeAngelo (1981) provides theoretical support for audit firm size as a proxy for auditor quality, a large body of research uses larger audit firm size as a surrogate for better audit quality (e.g., Becker et al., 1998; Francis & Krishnan, 1999; Francis et al., 1999; Lennox & Pittman, 2010; Teoh & Wong, 1993; Weber & Willenborg, 2003). Nonetheless, some recent studies show that there is no actual difference in audit quality between Big 4 auditors and non-Big 4 auditors. Specifically, Lawrence et al. (2011) show that the differences in proxies for audit quality between Big 4 and non-Big 4 auditors are more likely attributable to client characteristics.