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


  • Louis-Philippe Sirois

    () (HEC Montréal - HEC MONTRÉAL)

  • Sophie Marmousez

    (HEC Montréal - HEC MONTRÉAL)

  • Dan Simunic

    (The University of British Columbia [Vancouver])


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.

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  • Louis-Philippe Sirois & Sophie Marmousez & Dan 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
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    References listed on IDEAS

    1. Taylor, Mark H. & Simon, Daniel T., 1999. "Determinants of audit fees: the importance of litigation, disclosure, and regulatory burdens in audit engagements in 20 countries," The International Journal of Accounting, Elsevier, vol. 34(3), pages 375-388, August.
    2. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    3. repec:bla:joares:v:20:y:1982:i:2:p:604-616 is not listed on IDEAS
    4. Dye, Ronald A, 1993. "Auditing Standards, Legal Liability, and Auditor Wealth," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 887-914, October.
    5. Ellickson, Paul, 2005. "Supermarkets as a Natural Oligopoly," Working Papers 05-04, Duke University, Department of Economics.
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