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Client-based measure of the audit office reputation

Client-based measure of the audit office reputation Following the findings from marketing and management literature on corporate reputation, we develop a new proxy to measure the audit office reputation. We argue that the presence of reputable clients and their tenure with the audit office is an unbiased and strong testimony for audit office reputation. For a sample of 3,233 audit firm clients we find that our measure of audit office reputation is positively associated with audit fees and audit quality. We also show that the earnings of clients from audit offices with higher CBAR are valued higher, suggesting that the market perceives the reputation of such offices to be higher and the earnings of their clients to be more credible. This research is important since CBAR is a new and readily available measure of audit office quality that provides incremental explanatory power for audit fees and audit quality beyond previously available measures. Keywords: audit office reputation; client reputation; audit fees; audit quality; market value. Reference to this paper should be made as follows: Asthana, S. and Kalelkar, R. (2017) `Client-based measure of the audit office reputation', Int. J. Accounting, Auditing and Performance Evaluation, Vol. 13, No. 2, pp.199­226. Biographical notes: Sharad Asthana is an award http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting, Auditing and Performance Evaluation Inderscience Publishers

Client-based measure of the audit office reputation

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Publisher
Inderscience Publishers
Copyright
Copyright © 2017 Inderscience Enterprises Ltd.
ISSN
1740-8008
eISSN
1740-8016
DOI
10.1504/IJAAPE.2017.083037
Publisher site
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Abstract

Following the findings from marketing and management literature on corporate reputation, we develop a new proxy to measure the audit office reputation. We argue that the presence of reputable clients and their tenure with the audit office is an unbiased and strong testimony for audit office reputation. For a sample of 3,233 audit firm clients we find that our measure of audit office reputation is positively associated with audit fees and audit quality. We also show that the earnings of clients from audit offices with higher CBAR are valued higher, suggesting that the market perceives the reputation of such offices to be higher and the earnings of their clients to be more credible. This research is important since CBAR is a new and readily available measure of audit office quality that provides incremental explanatory power for audit fees and audit quality beyond previously available measures. Keywords: audit office reputation; client reputation; audit fees; audit quality; market value. Reference to this paper should be made as follows: Asthana, S. and Kalelkar, R. (2017) `Client-based measure of the audit office reputation', Int. J. Accounting, Auditing and Performance Evaluation, Vol. 13, No. 2, pp.199­226. Biographical notes: Sharad Asthana is an award

Journal

International Journal of Accounting, Auditing and Performance Evaluation – Inderscience Publishers

Published: Jan 1, 2017

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