Auditor Reputation: The International Empirical Evidence

The purpose of this paper is to consider whether some audit firms are perceived by the financial communities of different countries to have higher reputations than other audit firms. The results that will be considered come from three sources: audit fee studies, studies of the issue of new shares and studies of the effects on a company of changing its auditor. The studies reveal that there is considerable evidence that Big Six auditors are differentiated from other audit firms by company directors when recommending to shareholders the appointment of a firm of auditors and its audit fee. The results point to a Big Six audit fee premium of between 16 to 37% across the countries surveyed. Participants in the stock market (investors and bankers) also appear to differentiate between audit firms. The Big Six tend to be associated with a higher quality service in most of the countries surveyed. In addition, there is some evidence of differential effects within the Big Six, with Price Waterhouse being identified with above average reputation in the 1980s in three countries. However, for other Big Six firms any reputational effects appear to be country specific and do not generalize across countries.