EconPapers    
Economics at your fingertips  
 

Do the Big 4 and the Second-tier firms provide audits of similar quality?

Jeff P. Boone, Inder K. Khurana and K.K. Raman

Journal of Accounting and Public Policy, 2010, vol. 29, issue 4, 330-352

Abstract: In this paper, we examine audit quality for Big 4 and Second-tier auditors during 2003-2006. We utilize the auditor's propensity to issue a going concern audit report for distressed clients as a measure of audit quality. In addition, since the purpose of an audit is to improve financial reporting quality, we utilize abnormal accruals as an observable proxy for audit quality. Further, we utilize the client- and year-specific ex ante equity risk premium as a proxy for audit quality as perceived by investors. We control for auditor self-selection bias using the matched-pairs sample approach discussed by Francis and Lennox (2008). We find weak evidence that the Big 4 have a higher propensity to issue going concern audit opinions for distressed companies. However, the level of performance-adjusted abnormal accruals for Big 4 and Second-tier audit firm clients appears to be similar. With respect to investor perceptions, we find the client-specific ex ante equity risk premium to be lower for Big 4 clients than for Second-tier audit firm clients. Overall, our findings suggest little difference in actual audit quality but a more pronounced difference in perceived audit quality. Collectively, the evidence we provide informs the current discourse on audit quality, auditor choice, and the viability of Second-tier auditors as an alternative to the Big 4.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (42) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0278-4254(10)00042-6
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jappol:v:29:y::i:4:p:330-352

Access Statistics for this article

Journal of Accounting and Public Policy is currently edited by L. A. Gordon

More articles in Journal of Accounting and Public Policy from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-03-09
Handle: RePEc:eee:jappol:v:29:y::i:4:p:330-352