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Audit office size, audit quality and audit pricing: evidence from small- and medium-sized enterprises

Sundgren, Stefan; Svanström, Tobias
Journal article, Peer reviewed
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URI
http://hdl.handle.net/11250/93716
Date
2013
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  • Scientific articles [1334]
Original version
http://dx.doi.org/10.1080/00014788.2012.691710
Abstract
Using Swedish data we investigate how audit quality and audit pricing vary with audit firm and office size. In contrast to prior studies, we use disciplinary sanctions issued against auditors not meeting the quality requirement as the measure of audit quality. We find no significant differences in the likelihood of sanctions between Big 4 audit firms and the fifth and sixth largest audit firms in Sweden (Grant Thornton and BDO). We refer to these collectively as ‘Top 6’. However, we find that the probabilities of warnings or exclusions from the profession are much higher for non-Top 6 auditors in Sweden than for Top 6 auditors. Furthermore, we find a strong negative association between the likelihood of sanctions and audit office size for non-Top 6 auditors. This association is insignificant for Top 6 audit firms. Audit fees follow a similar pattern and indicate that larger audit firms and offices put in more effort or have greater expertise. These results suggest that audit quality is differentiated in the private segment market. However, contrary to prior studies, our results suggest that the important dimensions are Top 6 versus non-Top 6 and the office size of non-Top 6 audit firms.
Description
This is the authors’ refereed manuscript to the article
Publisher
Taylor & Francis
Journal
Accounting and Business Research

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