How Do Increasing Litigation Concerns Impact the Relationship Between Assurance Firm Size and Attest Service Quality?

• In Event: Auditing I

Abstract

Cross-country investigations present contrasting views on how rising litigation concerns affect the service quality gap between larger and smaller assurance firms. To shed new light on this issue, we examine differential litigation concerns arising in a U.S. setting. We contend that because annual audits are comprehensive while interim reviews are limited in scope, assurance firms’ litigation exposure is substantially lower for interim reviews than for annual audits. We document that reviews conducted by Big N firms are of higher quality than those performed by national or regional firms. This finding provides new evidence that performance quality differences between Big N and non-Big N firms extend beyond annual audit services. Furthermore, we show that assurance firms of all sizes impose greater earnings quality in audit services than in review services. However, the improvement in audited over reviewed service quality is greater for Big N firms than for national or regional firms.

Authors

• Ryan Joseph Casey, University of Illinois-Chicago

• Steve Kaplan, Arizona State University - Tempe

• Arianna S. Pinello, Florida Gulf Coast University