Does size matter? The influence of large clients on office-level auditor reporting decisions

Large clients create an economic dependence that may cause auditors to compromise their independence and report favorably to retain valuable clients. Economic dependence is measured as a client's size relative to the size of the office that contracts for the audit and issues the audit report. W...

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Bibliographic Details
Published in:Journal of accounting & economics 2000-12, Vol.30 (3), p.375-400
Main Authors: Reynolds, J.Kenneth, Francis, Jere R
Format: Article
Language:English
Subjects:
Accruals
Audit reports
Auditing
Auditor independence
Auditors reports
Big Five accounting firms
Business accounting
Clients
Conservatism
Decision making
Effects
Financial reporting
Going concern
Regression analysis
Size of enterprise
Studies
U.S.A
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Summary:Large clients create an economic dependence that may cause auditors to compromise their independence and report favorably to retain valuable clients. Economic dependence is measured as a client's size relative to the size of the office that contracts for the audit and issues the audit report. We find no evidence economic dependence causes Big Five auditors to report more favorably for larger clients in their offices. However, larger clients also pose greater litigation risk, and we do find that Big 5 auditors report more conservatively for larger clients, suggesting that reputation protection dominates auditor behavior.
ISSN:0165-4101
1879-1980
DOI:10.1016/S0165-4101(01)00010-6