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Big 4 and non-Big 4 Audit Production Costs: Office Level Audit Technology and the Impact on Audit Fees

Author

Listed:
  • Louis-Philippe Sirois

    (HEC Montréal - HEC Montréal)

  • Sophie Marmousez

    (HEC Montréal - HEC Montréal)

  • Dan A. Simunic

    (UBC - University of British Columbia)

Abstract

We empirically evaluate the degree to which Big 4 auditors achieve economies of scale resulting from investments in audit technology at the local U.S. office level and, more importantly, determine how this affects audit pricing differences between Big 4 and non-Big 4 auditors. Focusing on the U.S. audit market for small to medium sized public companies, we argue and find that, relative to non-Big 4 auditors, Big 4 audit firms benefit from economies of scale at the local office level. In turn, this results in decreasing Big 4 audit fees in local market size, relative to non-Big 4 audit fees (i.e., decreasing Big 4 premium). Our results are consistent with Big 4 audit firms engaging in greater audit technology investments at the local office level in order to enhance audit efficiency, as argued by Sirois and Simunic (2010). Overall, our results support the view that the U.S. audit market remains competitive, despite the high level of market concentration.

Suggested Citation

  • Louis-Philippe Sirois & Sophie Marmousez & Dan A. Simunic, 2012. "Big 4 and non-Big 4 Audit Production Costs: Office Level Audit Technology and the Impact on Audit Fees," Post-Print hal-00691147, HAL.
    • Handle: RePEc:hal:journl:hal-00691147
    Note: View the original document on HAL open archive server: https://hal.science/hal-00691147
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    References listed on IDEAS

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