In:
Journal of International Accounting Research, American Accounting Association, Vol. 21, No. 2 ( 2022-06-01), p. 31-56
Abstract:
We contribute to the debate on whether the “Big N effect” on audit quality is due to client self-selection by controlling for pre-audit earnings quality. Using data from the Chinese Institute of Certified Public Accountants, we find that pre-audit earnings quality is higher for Big 4 clients. Controlling for pre-audit earnings quality, restatement frequency is lower for Big 4 clients than for non-Big 4 clients, but there is no significant difference in discretionary accruals between Big 4 and non-Big 4 clients. Our findings indicate that Big 4 and non-Big 4 auditors in China pursue different strategies to enhance audit quality. The Big 4 enhance audit quality by recruiting and retaining clients with higher earnings quality and acting more conservatively toward clients with a higher risk for earnings restatement. In contrast, non-Big 4 auditors enhance audit quality by requiring more downward audit adjustments.
Type of Medium:
Online Resource
ISSN:
1558-8025
,
1542-6297
DOI:
10.2308/JIAR-2020-056
Language:
English
Publisher:
American Accounting Association
Publication Date:
2022
detail.hit.zdb_id:
2115967-1
SSG:
3,2
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