1521THE ACCOUNTING REVIEWAmerican Accounting AssociationVol. 84, No. 5DOI: 10.2308/accr.2009.84.5.15212009pp. 1521–1552Big 4 Office Size and Audit QualityJere R. FrancisUniversity of Missouri–ColumbiaMichael D. YuWashington State UniversityABSTRACT: Larger offices of Big 4 auditors are predicted to have higher quality auditsfor SEC registrants due to greater in-house experience in administering such au-dits. We test this prediction by examining a sample of 6,568 U.S. firm-year observationsfor the period 2003–2005 and audited by 285 unique Big 4 offices. Results are con-sistent with larger offices providing higher quality audits. Specifically, larger offices aremore likely to issue going-concern audit reports, and clients in larger offices evidenceless aggressive earnings management behavior. These findings are robust to extensivecontrols for client risk factors and to controls for other auditor characteristics. Whilethe evidence suggests audit quality is higher on average in larger Big 4 offices, wemake no claims that audit quality is unacceptably low in smaller offices.Keywords: audit quality; Big 4 accounting firms; earnings quality; accruals; earningsbenchmarks; going-concern audit reports.Data Availability: Data used in this study are available from public sources identifiedin the paper.I. INTRODUCTIONThis study extends recent research analyzing the effects of client influence and auditorindustry expertise in individual practice offices of Big 4 accounting firms (Reynoldsand Francis 2000; Craswell et al. 2002; Ferguson et al. 2003), and investigates afundamental question that has not been addressed in prior studies: Is Big 4 audit qualityuniform across small and large practice offices? Our prediction is that audits are of hi...
