Does office size matter in client acceptance decisions? Evidence from big 4 accounting firms

Yu-Ting Hsieh (), Chan-Jane Lin () and Hsihui Chang ()
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Yu-Ting Hsieh: National Cheng Kung University
Chan-Jane Lin: National Taiwan University
Hsihui Chang: Drexel University

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 1, No 12, 383-407

Abstract: Abstract This study examines whether audit firm office size affects auditors’ risk tolerance in making client acceptance decisions. Analyzing publicly traded client portfolios of the Big 4 audit firms from 2003 to 2012, we find that large Big 4 offices are less likely to accept clients with high audit risk. This is particularly true when auditors face temporary capacity constraints arising from the exogenous demand shock by SOX 404 during the post-SOX 404/pre-AS5 period (2003–2007). However, the negative association between office size and risk consideration in client acceptance decisions attenuates when AS5 coupled with the financial recession results in a temporary capacity surplus in the post-AS5/financial crisis period (2008–2012).

Keywords: Client acceptance decisions; Office size; Big 4 auditors; Exogenous capacity shock (search for similar items in EconPapers)
JEL-codes: M42 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-021-00998-x

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