Discussion of ‘Strategic pricing by Big 4 audit firms in private client segments’

SUMMARY Prior audit research suggests that most, if not all, audit quality can be explained at the office level. However, the question remains of whether office-level audit quality is contingent on how individual offices relate to the firm as a whole. Motivated by theories of knowledge management, organizational learning, and networks, we posit that individual offices are connected to their audit network through partner knowledge sharing and oversight, which impact office-level audit quality. We interview Big 4 audit partners and learn that knowledge sharing between partners in different offices is common and intended to aid in the provision of audit services. Using network connectedness to proxy for knowledge sharing and oversight between offices of the same firm, we document that more connected offices are associated with fewer client restatements and lower discretionary accruals. We additionally find that network effects are magnified when accounting treatments are more complex and require greater auditor judgement.

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Audit firms and industry specialization in an emerging economy

Journal of Accounting & Organizational Change ◽

10.1108/jaoc-03-2017-0024 ◽

2018 ◽

Vol 14 (3) ◽

pp. 338-362

Author(s):

Karim Hegazy ◽

Mohamed Hegazy

Keyword(s):

Financial Services ◽

Capital Investment ◽

Emerging Economy ◽

Annual Reports ◽

Brand Name ◽

Industry Specialization ◽

Content Type ◽

Audit Firm ◽

Big 4 ◽

Audit Firms

PurposeThis study aims to investigate the implications of audit industry specialization on auditor’s retention and growth within an emerging economy. Factors such as whether the firm is a Big 4, a firm with international affiliation, a local firm and the type of industry were studied to analyse the reasons behind audit firm retention and growth.Design/methodology/approachThis research is based on a field study related to audit firms providing services to listed companies in an emerging economy. The sample includes the top 100 publicly held companies’ in the Egyptian stock market during 2006-2011 for which their annual reports are analysed to determine the audit firms’ retention and growth. An assessment of the continuity of the auditors and the increase in the number of audit clients were also measured.FindingsThe results confirm that industry specialization has an important effect on the auditor’s retention, especially for industries where capital investment is significant such as buildings, construction, financial services, housing and real estate. Big 4 audit firms retained their clients because of their industry specialization and brand name. Evidence was found that good knowledge of accounting and auditing standards resulted in audit firms with international affiliation competing with the Big 4 for clients’ retention and growth.Originality/valueThis study contributes to the existing literature, as it is among the first to provide empirical evidence on auditor retention, growth and auditor’s dominance in an emerging economy such as Egypt.

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Auditors’ professional and organizational identities and commercialization in audit firms

Accounting Auditing & Accountability Journal ◽

10.1108/aaaj-02-2014-1607 ◽

2018 ◽

Vol 31 (2) ◽

pp. 374-399 ◽

Cited By ~ 15

Author(s):

Pernilla Broberg ◽

Timurs Umans ◽

Peter Skog ◽

Emily Theodorsson

Keyword(s):

Professional Identity ◽

Customer Orientation ◽

Linear Regression Analysis ◽

Positive Association ◽

Process Orientation ◽

Content Type ◽

Organizational Identities ◽

Big 4 ◽

Audit Firms ◽

New Instrument

Purpose The purpose of this paper is to explain how auditors’ professional and organizational identities are associated with commercialization in audit firms. Unlike previous studies exploring the consequences of commercialization in the firms, the study directs its attention toward the potential driver of commercialization, which the authors argue to be the identities of the auditors. Design/methodology/approach The paper is based on 374 responses to a survey distributed to 3,588 members of FAR, the professional association of accountants, auditors and advisors in Sweden. The study used established measures of organizational and professional identity and introduced market, customer and firm process orientation as aspects of commercialization. The study explored the data through descriptive statistics, principle component analysis and correlation analysis and tested the hypotheses with multiple linear regression analysis. Findings The findings indicated that the organizational identity of auditors has a positive association with three aspects of commercialization: market orientation, customer orientation and firm process orientation. Contrary to the arguments based on prior literature, the study has found that the professional identity of auditors is also a positively associated with commercialization. This indicates a change of the role of professional identity vis-à-vis commercialization of audit firms. The positive association between professional identity and commercial orientation could indicate the development of “organizational professionalism.” The study also found differences between the association between professional identity and commercialization in Big 4 and non-Big 4 firms. While in Big 4 firms, professional identity is positively associated only with the firm’s process orientation, in non-Big 4 firms, professional identity has a positive association with all three aspects of commercialization. Originality/value The paper provides insight into how auditors’ identities have influenced commercialization of audit firms and into the normalizing of commercialization within auditing. The study also developed a new instrument for measuring commercialization, one based on market, customer and firm process orientation concepts. This paper suggests that this instrument is an alternative to the observation through proxies.

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Strong Competition Among Audit Companies and Power to Achieve Higher Audit Fees: Who is at the Forefront?

Scientific Annals of Economics and Business ◽

10.2478/saeb-2018-0012 ◽

2018 ◽

Vol 65 (2) ◽

pp. 119-138

Author(s):

Vesna Štager

Keyword(s):

Audit Fees ◽

Clear Indication ◽

Big 4 ◽

Audit Firms ◽

Strong Competition

Abstract The aim of the research is to determine if the audit fees are statistically significantly different between the audit companies and vary, depending on the size of client and audit company. We find that for large auditees the average audit fees of the Big 4 Group did not statistically significantly deviate from normative audit fees, even surpass them, but not statistically significant. On average, small audit firms when auditing large auditees do not meet the predicted normative audit fees, and this deviation is statistically significant. Also, we confirm that the Big 4 auditing companies (KPMG, E & Y, Deloitte and PwC) were, statistically, significantly more likely to charge higher audit fees than a small auditing company would charge. The paper contributes to the literature to give users a clear indication about what average audit fees are typical of the Slovenian audit companies and which audit company is at the forefront.

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Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

Current Issues in Auditing ◽

10.2308/ciia-52117 ◽

2018 ◽

Vol 12 (1) ◽

pp. A29-A39

Author(s):

Rasha Kassem

Keyword(s):

Best Practices ◽

Training Programs ◽

Risk Assessments ◽

External Auditors ◽

Corporate Scandals ◽

Fraud Risk ◽

Big 4 ◽

Audit Firms ◽

Fraud Risk Assessments ◽

Audit Standards

SUMMARY Recent corporate scandals have raised concerns about the quality and value of the audit profession and have generated demands for improving auditors' evaluation of management integrity. The literature lacks evidence regarding methods of assessing management integrity, while audit standards provide little if any guidance on this matter. This raises questions about how external auditors can comply with the audit standards in this area and what best practices and deficiencies exist in the assessment of management integrity. This study examines methods of assessing management integrity by providing insights from the Big 4 auditors in Egypt. The findings of this study will benefit audit firms in their professional audit training programs, as well as auditors conducting fraud risk assessments.

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When Should Audit Firms Introduce Analyses of Big Data Into the Audit Process?

Journal of Information Systems ◽

10.2308/isys-51837 ◽

2017 ◽

Vol 31 (3) ◽

pp. 81-99 ◽

Cited By ~ 21

Author(s):

Anna M. Rose ◽

Jacob M. Rose ◽

Kerri-Ann Sanderson ◽

Jay C. Thibodeau

Keyword(s):

Big Data ◽

Audit Process ◽

Processing Mode ◽

Big 4 ◽

Audit Firms ◽

Audit Evidence ◽

Evaluation Of Evidence ◽

Data Visualizations ◽

Professional Judgments

ABSTRACT This study investigates how the timing of the consideration of Big Data visualizations affects an auditor's evaluation of evidence and professional judgments. In addition, we examine whether the use of an intuitive processing mode, as compared to a deliberative processing mode, influences an auditor's use and evaluation of Big Data visualizations. We conduct an experiment with 127 senior auditors from two Big 4 firms and find that auditors have difficulty recognizing patterns in Big Data visualizations when viewed before more traditional audit evidence. Our findings also indicate that auditors who view Big Data visualizations containing patterns that are contrary to management assertions after they view traditional audit evidence have greater concerns about potential misstatements and increase budgeted hours more. Overall, our results suggest that Big Data visualizations used as evidential matter have fewer benefits when they are viewed before auditors examine more traditional audit evidence.

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Narratives of the Big-4 transparency reports: country effects or firm strategy?

Managerial Auditing Journal ◽

10.1108/maj-09-2018-1994 ◽

2019 ◽

Vol 34 (8) ◽

pp. 951-985

Author(s):

Ana Zorio-Grima ◽

Pedro Carmona

Keyword(s):

Content Analysis ◽

Voluntary Disclosure ◽

Methodological Approach ◽

Firm Strategy ◽

Future Research ◽

Content Type ◽

Country Effects ◽

Big 4 ◽

Audit Firms ◽

The Uk

Purpose The purpose of this paper is to examine whether audit firms use transparency reports (TRs) as a tool to standardize their brand image or whether the semantic and content analysis in these reports indicates a higher importance of country effects. Design/methodology/approach The sample includes 28 TRs published in English by the Big-4 audit firms from five EU countries (the UK, Ireland, Luxemburg, Hungary and Malta), as well as in the USA and Australia. Findings Using content analysis, this research finds that there is variation in the language used in TRs both across audit firms and jurisdictions. Most TRs from different countries of the same firm tend to be clustered, suggesting that audit firms use transparency reporting as a strategy to differentiate themselves from their competitors. In fact, EY and KPMG seem to have more standardized internal procedures and standardized information. Regarding country effects, the results indicate that TRs in the UK are longer and show more detailed information. Originality/value Overall, this research is innovative in the sense that it applies a new methodological approach to an emerging topic such as audit transparency reporting. It identifies emerging topics of voluntary disclosure, such as financial data of the firm, gender and ethnic origin of employees, community involvement or sanctions, among other topics of interest which might be explored in detail by future research to understand the construction of the profession.

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Big 4 Alumni's Attitudes and Behavior Toward their Former Firm

Current Issues in Auditing ◽

10.2308/ciia-52642 ◽

2019 ◽

Vol 14 (1) ◽

pp. P10-P15

Author(s):

Nathan H. Cannon ◽

David N. Herda ◽

Thomas M. Puffer

Keyword(s):

Social Exchange ◽

Social Exchange Theory ◽

Exchange Theory ◽

Factors Associated ◽

Big 4 ◽

Audit Firms ◽

Firm Commitment ◽

And Behavior ◽

Attitudes And Behavior ◽

Practical Implications

SUMMARY This article summarizes a recently published academic study (Cannon, Herda, and Puffer 2019) that examines factors associated with Big 4 alumni's proclivity to benefit their former firm by recommending the firm to others as a potential service provider or employer (i.e., post-employment citizenship). Based on social exchange theory, our study predicts and finds that alumni who perceive their firm treated them fairly and supported them during their time with the firm are more committed to the firm, and therefore more likely to engage in post-employment citizenship. Although we find that firm commitment decreases after individuals exit the firm, our results suggest that the firm's alumni outreach efforts (both formal and informal) can help soften this decline. Practical implications for audit firms are discussed.

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