The Relationship Between Audit Firm Size and Financial Reporting Credibility in Public Companies

Posted: Jul 25, 2018

• Piper Graham
• Lila Armstrong
• Spencer Kelly

Abstract

The relationship between audit firm size and financial reporting credibility represents a fundamental question in accounting and corporate governance research. Traditional perspectives, largely influenced by DeAngelo's seminal work, posit that larger audit firms provide higher quality audits due to greater reputational capital at risk and enhanced technical capabilities. However, this conventional wisdom requires re-examination in contemporary market contexts characterized by increased regulatory scrutiny, technological transformation in audit processes, and evolving stakeholder expectations. This research challenges the linear assumption underlying the audit firm size-quality relationship by introducing a multi-dimensional framework that captures both quantitative and qualitative dimensions of financial reporting credibility.