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Auditor Locality, Audit Quality and Audit Pricing
Jong - Hag Choi,
Seoul National University
Jeong - Bon Kim, Concordian University and Hong Kong Polytechnic University
Aini Qiu, Hong Kong Polytechnic University
Yoonseok Zang, Singapore Management University
ABSTRACT. This paper investigates whether and how the locality of auditor or the geographic proximity between auditors and clients affects audit quality and audit pricing. To capture the effect of auditor locality, we differentiate local auditors from non-local auditors based on: (1) whether or not the practicing office of an audit engagement is located in the same state where the client is headquartered; and (2) the actual geographic distance between two cities where the auditor’s practicing office and the client’s headquarter are located. Our empirical results reveal the following: First, clients of local auditors report significantly lower abnormal accruals, compared with clients of non-local auditors, suggesting that local auditors provide higher-quality audits. Second, the fees paid to local auditors are, overall, not significantly different from those paid to non-local auditors. Further analyses show that local Big 4 auditors charge lower audit fees than non-local Big 4 auditors.
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