How Can Small International Accounting Firms Improve Audit Quality? The Role of Accounting Associations and Networks

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 these 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 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