Title: Client-based measure of the audit office reputation

Authors: Sharad Asthana; Rachana Kalelkar

Addresses: Department of Accounting, College of Business, University of Texas at San Antonio, TX, USA ' Department of Accounting, School of Business Administration, University of Houston-Victoria, TX, USA

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; auditing; corporate reputation; client earnings; quality measurement.

DOI: 10.1504/IJAAPE.2017.083037

International Journal of Accounting, Auditing and Performance Evaluation, 2017 Vol.13 No.2, pp.199 - 226

Received: 23 Sep 2015
Accepted: 23 Jun 2016
Published online: 18 Mar 2017 *

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