Audit Office Capacity Audit Pricing and Audit Quality

Abstract

Resorting to the economics concept of opportunity cost this study explains and tests the association between unused capacity pertaining to normal audit tasks and audit pricing and investigate if there exists any factors that moderate this association The empirical results verify that my measures of unused capacity for city offices are negatively associated with audit fees and the relation holds for both Big 4 and Non-Big 4 auditees Furthermore the association is magnified when bidding on new clients due to enhanced competition This study also finds that the negative association is driven by small- and medium-size city offices or audit offices with less industry expertise which may indicate that larger and city-level industry leader offices may be more reluctant to consider unused capacity when pricing audit fees due to the potential pressure from auditees to compare audit fees protection of brand perception and efforts to signal a reputation of higher audit quality or they are better able to manage unused capacity However using unused capacity to proxy for auditors’ pressure this study does not find consistent evidence that higher unused capacity is associated with better audit quality which may indicate that my measures cannot accurately represent the pressure that individual auditors face and/or that quality control and firm-wide consultation mechanisms function to some extent in assuring uniform audit quality

Date of Award	2018 Jul 11
Original language	English
Supervisor	Hua-Wei Huang (Supervisor)