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

Author

Listed:
  • Yu-Ting Hsieh

    (National Cheng Kung University)

  • Chan-Jane Lin

    (National Taiwan University)

  • Hsihui Chang

    (Drexel University)

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).

Suggested Citation

  • Yu-Ting Hsieh & Chan-Jane Lin & Hsihui Chang, 2022. "Does office size matter in client acceptance decisions? Evidence from big 4 accounting firms," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 383-407, January.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:1:d:10.1007_s11156-021-00998-x
    DOI: 10.1007/s11156-021-00998-x
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    References listed on IDEAS

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    Cited by:

    1. Shao-Huai Liang & Yu-Ting Hsieh & Hsuan-Chu Lin & Hui-Yu Hsiao, 2023. "What underlies key audit matters? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1243-1258, April.

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    More about this item

    Keywords

    Client acceptance decisions; Office size; Big 4 auditors; Exogenous capacity shock;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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