Associations and Networks of International Accounting Firms

Abstract

Commonly examined attributes of audit quality in international markets include accounting firm size (proxied for by Big 4 membership) and industry expertise, which is highly correlated with accounting firm size. In this study, we focus on an important but often overlooked sector of the international audit market: non-Big 4 accounting firms. Specifically, we examine whether membership in an international accounting association or network (AAN) allows non-Big 4 accounting firms to provide higher audit quality. Using a difference-in-differences research design and data from 24 countries, we find that audit quality improves after small international accounting firms join an AAN. We also find that AAN-member audit quality is not significantly different from Big 4 audit quality when audit clients are similarly sized. These findings have important implications for accounting firms, audit committees, regulators, and investors in international markets.