（2009）Big 4 Office Size and Audit Quality.pdfVIP

THE ACCOUNTING REVIEW American Accounting Association Vol. 84, No. 5 DOI: 10.2308/accr.200521 2009 pp. 1521–1552 Big 4 Office Size and Audit Quality Jere R. Francis University of Missouri–Columbia Michael D. Yu Washington State University ABSTRACT: Larger offices of Big 4 auditors are predicted to have higher quality audits for SEC registrants due to greater in-house experience in administering such au- dits. We test this prediction by examining a sample of 6,568 U.S. firm-year observations for the period 2003–2005 and audited by 285 unique Big 4 offices. Results are con- sistent with larger offices providing higher quality audits. Specifically, larger offices are more likely to issue going-concern audit reports, and clients in larger offices evidence less aggressive earnings management behavior. These findings are robust to extensive controls for client risk factors and to controls for other auditor characteristics. While the evidence suggests audit quality is higher on average in larger Big 4 offices, we make no claims that audit quality is unacceptably low in smaller offices. Keywords: audit quality; Big 4 accounting firms; earnings quality; accruals; earnings benchmarks; going-concern audit reports. Data Availability: Data used in this study are available from public sources identified in the paper. I. INTRODUCTION his study extends recent research analyzing the effects of client influence and auditor Tindustry expertise in individual practice offices of Big 4 accounting firms (Reyn