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Does auditor size matter? Evidence from small audit firms

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  • Comprix, Joseph
  • Huang, Huichi

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.

Suggested Citation

  • Comprix, Joseph & Huang, Huichi, 2015. "Does auditor size matter? Evidence from small audit firms," Advances in accounting, Elsevier, vol. 31(1), pages 11-20.
    • Handle: RePEc:eee:advacc:v:31:y:2015:i:1:p:11-20
    DOI: 10.1016/j.adiac.2015.03.007
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    References listed on IDEAS

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    Cited by:

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    2. Astrid Rudyanto, 2017. "Audit Firm Reputation versus Auditor Capability: Their Effect on Audit Quality in Indonesia," GATR Journals afr147, Global Academy of Training and Research (GATR) Enterprise.
    3. Luis Porcuna-Enguix & Elisabeth Bustos-Contell & José Serrano-Madrid & Gregorio Labatut-Serer, 2021. "Constructing the Audit Risk Assessment by the Audit Team Leader When Planning: Using Fuzzy Theory," Mathematics, MDPI, vol. 9(23), pages 1-22, November.
    4. Dang, Man & Puwanenthiren, Premkanth & Truong, Cameron & Henry, Darren & Vo, Xuan Vinh, 2022. "Audit quality and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Rajat Deb & Mukesh Nepal & Sourav Chakraborty, 2023. "IFRS and Audit Quality: A Systematic Literature Review," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 48(1), pages 118-138, February.
    6. Iman Harymawan & Aditya Aji Prabhawa & Mohammad Nasih & Fajar Kristanto Gautama Putra, 2021. "Risk Management Committee, Auditor Choice and Audit Fees," Risks, MDPI, vol. 9(9), pages 1-16, August.
    7. Mihai Carp & Costel Istrate, 2021. "Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market," Sustainability, MDPI, vol. 13(12), pages 1-16, June.

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    More about this item

    Keywords

    Small audit firms; Earnings management; Real earnings management; Propensity score matching;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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