Does auditor size matter? Evidence from small audit firms

Joseph Comprix, Huichi Huang

Research output: Contribution to journalArticle

10 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)11-20
Number of pages10
JournalAdvances in Accounting
Volume31
Issue number1
DOIs
StatePublished - Jun 1 2015

Keywords

  • Earnings management
  • Propensity score matching
  • Real earnings management
  • Small audit firms

ASJC Scopus subject areas

  • Accounting
  • Finance

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