Does office size matter in client acceptance decisions? Evidence from big 4 accounting firms
Journal
Review of Quantitative Finance and Accounting
Journal Volume
58
Journal Issue
1
Pages
383-407
Date Issued
2022
Author(s)
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). ? 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.
Subjects
Big 4 auditors
Client acceptance decisions
Exogenous capacity shock
Office size
SDGs
Type
journal article