Flexible CPA staffing in non-Big 4 audit firms: Its determinants and implications for audit fees and audit quality

In this study, we discuss how small audit firms (i.e. non-Big 4 audit firms) address the staffing crunch during the busy season. Using monthly certified public accountant (CPA) employment data from Korea, we find that the number of CPAs in non-Big 4 audit firms peaks before the busy season but drops afterward, suggesting the prevalence of part-time or short-term employment (i.e. flexible staffing). Flexible CPA staffing is more prevalent in audit firms with lower sales, higher sales growth and lower profitability. We further document that the standard deviation of the changes in monthly CPA numbers within a year is negatively associated with audit fees, implying that flexible staffing enables small audit firms to charge lower fees to clients. Additionally, we find no evidence that flexible staffing significantly impairs audit quality. We also report evidence that non-Big 4 audit firms attract more clients when they are more flexibly staffed than otherwise. Collectively, non-Big 4 firms reduce operating leverage via flexible staffing arrangements and share the benefits with clients without compromising audit service quality.