 |
An International Meeting of American Accounting
Association
|
Office Size and Audit Quality |
Dennis Caplan
Oregon State University
Kevin Raedy
University of North Carolina at Chapel Hill
Abstract: This paper tests for quality differences between small offices and large offices of large public accounting firms. We hypothesize that large offices have resources that are not available to smaller offices, and that at least some portion of the firm’s resources are not costlessly transferable across geographic locations. We also hypothesize that audit firms that employ a structured audit approach will maintain a more consistent level of quality between large and small offices. Our measure of audit quality is based on the corrections of errors in previously-issued annual financial statements. We measure office size by an estimate of the total assets of the office’s public company clients. Our findings support our hypothesis that large offices provide higher quality audits than small offices. We also find support for our second hypothesis, that the degree of structure in the firm’s audit approach affects the uniformity of audit quality within a firm.