Does Audit Firm Size Matter? The Effect of Audit Firm Size Measured by Audit Firm Revenues, Number of Offices, and Professional Headcounts on Audit Quality and Audit Fees

54 Pages Posted: 24 Oct 2013

See all articles by Gil S. Bae

Gil S. Bae

Korea University - Department of Accounting

Jae Eun Lee

Hongik University - School of Business

Date Written: July 22, 2013

Abstract

Using audit firm size measured by audit firm revenues, the number of offices, and professional headcounts, we find that audit firm size measured as continuous variable is positively associated with engagement-level audit quality proxied by discretionary accruals and modified opinions, and is also positively associated with audit fees. The Big 4 audit firms differ considerably in size and their size also measured by revenues, the number of offices, and professional headcounts is significantly associated with the audit quality and audit fee differences across Big 4 auditors. However, we find only limited evidence of the hypothesized relation between associate-to-partner ratio (i.e., human capital leverage) and audit quality, and find no evidence that associate-to-partner ratio is associated with audit fees.

Keywords: Audit firm size, Associate-to-partner ratio, Audit quality, Audit fees, The Big 4/non-Big 4 audit firms

JEL Classification: M4, M42

Suggested Citation

Bae, Gil Soo and Lee, Jae Eun, Does Audit Firm Size Matter? The Effect of Audit Firm Size Measured by Audit Firm Revenues, Number of Offices, and Professional Headcounts on Audit Quality and Audit Fees (July 22, 2013). Available at SSRN: https://ssrn.com/abstract=2344052 or http://dx.doi.org/10.2139/ssrn.2344052

Gil Soo Bae (Contact Author)

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

Jae Eun Lee

Hongik University - School of Business ( email )

72-1 Sangsu-Dong, Mapo-Gu
Seoul, 121-791
Korea, Republic of (South Korea)

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