The Scale and Scope of the Client Portfolio and Audit Pricing at the Individual Auditor Level: Evidence from China

Abstract

This study examines the relation between the scale and scope of an individual auditor’s client portfolio and audit pricing to better understand how auditors of heterogeneous characteristics are differentiated in the audit market. Using a sample from the Chinese market for the period 2001-2010, where the personal identities of signing auditors are publicly disclosed, we find that audit price charged by an individual auditor is positively related to the scale of his/her client portfolio, measured in terms of either total audit fees or the number of clients. However, the industry scope (diversity) of the client portfolio attenuates this positive relation between portfolio scale and pricing. Further analyses indicate that auditors of higher ability and reputation tend to have larger client scales and wider client scopes, and that scale is not related to audit delays whereas industry scope is positively related to delays. Taken together, our results suggest that at the individual auditor level, the scale of the client portfolio conveys the auditor’s ability (type), and given the scale, the industry scope of clients signals the auditor’s workload. Finally, our findings are mostly confined to auditors from non-Big N audit firms.