Audit Firm Office Size and Client Acceptance Decisions

Posted: 31 Jul 2012 Last revised: 28 Feb 2018

See all articles by Yu-Ting Hsieh

Yu-Ting Hsieh

National Cheng Kung University

Chan-Jane Lin

National Taiwan University - College of Management

Hsihui Chang

Drexel University

Date Written: February 26, 2018

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 becomes weaker when AS5 coupled with the financial recession results in a temporary capacity surplus in the post-AS5/financial crisis period (2008–2012).

Keywords: Client acceptance decisions; Office size; Big 4 auditors; Exogenous capacity shock

JEL Classification: M42

Suggested Citation

Hsieh, Yu-Ting and Lin, Chan-Jane and Chang, Hsihui, Audit Firm Office Size and Client Acceptance Decisions (February 26, 2018). Available at SSRN: https://ssrn.com/abstract=2120337

Yu-Ting Hsieh

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

Chan-Jane Lin

National Taiwan University - College of Management ( email )

Department of Accounting
1 Roosevelt Rd. Sec. 4
Taipei 106
Taiwan
886-2-3366-1115 (Phone)
886-2-2363-3640 (Fax)

Hsihui Chang (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,915
PlumX Metrics