Office size of big 4 auditors and client restatements

Jere R. Francis, Paul N. Michas, Michael D. Yu

Research output: Contribution to journalArticlepeer-review

181 Scopus citations


Francis and Yu (2009) and Choi, Kim, Kim, and Zang (2010) report evidence that Big 4 audits are of higher quality when the engagement office is of larger size. Specifically, client earnings quality is higher and auditors in larger offices are more likely to issue going-concern audit reports. We extend this line of research to test if larger Big 4 offices have fewer client restatements. A client restatement provides more direct evidence of a low-quality audit than earnings quality metrics or going-concern reports, because a restatement indicates the client's auditor did not effectively enforce the correct application of GAAP at the time the original financial statements were issued. We analyze 2,557 firm-year restatements in a sample of 23,190 financial statements originally issued by U.S. firms from 2003 to 2008. We find that Big 4 office size is associated with fewer client restatements after controlling for innate client characteristics that may affect restatements (client size, financial performance, industry membership, nonfinancial measures, off-balance sheet activities, and market-related measures), and a set of controls for other auditor factors such as fees and industry expertise. The study raises important questions about the ability of smaller offices to deliver high-quality audits for SEC registrants.

Original languageEnglish (US)
Pages (from-to)1626-1661
Number of pages36
JournalContemporary Accounting Research
Issue number4
StatePublished - Dec 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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