2023B04 - The organizational setting of Big 4 and mid-sized audit firms and audit quality (Prof. dr. B. Dierynck)

Why?

An audit is a professional service, implying that the organizational setting of an audit firm drives audit quality. While it is widely acknowledged that the organizational setting of a Big 4 audit firm differs from the organizational setting of a mid-sized audit firm, evidence about audit quality differences between Big 4 audit firms and mid-sized audit firms is inconclusive. One potential explanation is that there are ‘multiple ways to Rome’ when it comes to audit quality. That is, different types of audit firms may serve different purposes, and it could be that both the organizational setting of a Big 4 audit firm and the organizational setting of a mid-sized audit firm can lead to high audit quality.

What?

We will examine differences between Big 4 and mid-sized audit firms by analyzing how three drivers of audit quality function in both types of audit firms. First, we will examine how Big 4 and mid-sized audit firms learn from public oversight inspections. Such learning is at the core of the spillover effect of public oversight inspections: what audit firms learn from the inspected audit engagement(s) spills over to other audit engagements of the same auditor and firm leading to an increase in audit quality delivered by the firm. It is unclear whether such a spillover effect materializes equally in Big 4 and mid-sized audit firms. This study contributes by examining the role of public oversight inspections at mid-sized audit firms and can help regulators design more tailored regulatory interventions. In the second project, we aim to investigate the shortage of audit talent by examining the attraction and retention of audit talent by Big 4 audit firms and mid-sized audit firms. Our aim is to quantitatively analyze why individuals nowadays choose for a career in auditing, how career paths in auditing evolve, and why auditors leave the audit profession. This study contributes to research and practice by developing a solid and quantitative foundation for one of the most pressing problems in auditing. The third project focuses on on-the-job learning. We aim at unravelling differences in on-the-job learning between Big 4 audit firms and mid-sized audit firms and understanding whether they materialize into relevant outcomes for auditors, audit firms, and society at large.