What is it about?
This research examines whether accounting firm ranks signal audit quality and which components of ranks are the drivers. We find that higher ranked accounting firms deliver higher audit quality. In addition, we find that non-revenue metrics help capture the quality of accounting firms. Finally, we find that downgraded accounting firms are more likely to be replaced and that clients are willing to pay higher audit fees when switching to higher ranked accounting firms.
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Why is it important?
Our research supports the global initiatives to identify audit quality indicators. Our findings suggest that accounting firm ranks convey meaningful information to the market and have economic impacts. Importantly, our research suggests that non-revenue metrics should be considered when developing audit quality indicators.
Perspectives
It is interesting to examine how accounting firm ranks are determined, whether such ranks have economic impacts, and which components have larger impacts. While several global initiatives have begun to identify audit quality indicators, there is no consensus on such indicators. Our research provides relevant information that may be of interest to global regulators when developing audit quality indicators.
Ting-Chiao Huang
Monash University
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This page is a summary of: Is there an association between accounting firm ranks and audit quality? An examination of the top 100 accounting firms in China, International Journal of Auditing, April 2019, Wiley,
DOI: 10.1111/ijau.12156.
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