Can Big 4 versus non-Big 4 differences in audit quality proxies be attributed to client characteristics?

Lawrence, A (2011) Can Big 4 versus non-Big 4 differences in audit quality proxies be attributed to client characteristics? Accounting Review, 86 (1). pp. 259-286. ISSN 0001-4826

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Official URL: http://www.aaapubs.org/doi/10.2308/accr.00000009?c...

Abstract

This study examines whether differences in proxies for audit quality between Big 4 and non-Big 4 audit firms could be a reflection of their respective clients’ characteristics. In our analyses, we use three audit-quality proxies—discretionary accruals, the ex ante cost-of-equity capital, and analyst forecast accuracy—and employ propensity-score and attribute-based matching models in attempt to control for differences in client characteristics between the two auditor groups while estimating the audit-quality effects. Using these matching models, we find that the effects of Big 4 auditors are insignificantly different from those of non-Big 4 auditors with respect to the three audit-quality proxies. Our results suggest that differences in these proxies between Big 4 and non-Big 4 auditors largely reflect client characteristics and, more specifically, client size. We caution the reader that this study has not resolved the question, although we hope that it encourages other researchers to explore alternative methodologies that separate client characteristics from audit-quality effects.

Item Type: Article
Subjects: Q > Quality control
A > Accountants
A > Accounting procedures
A > Auditing
Subject Areas: Accounting
DOI: 10.2308/accr.00000009
Date Deposited: 31 Aug 2017 15:52
Last Modified: 31 Aug 2017 15:52
URI: http://lbsresearch.london.edu/id/eprint/863

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