How Small Audit Firm Membership in Associations, Networks, and Alliances Can Impact Audit Quality and Audit Fees

This article summarizes "Small Audit Firm Membership in Associations, Networks, and Alliances: Implications for Audit Quality and Audit Fees'' (Bills, Cunningham, Myers 2015), which examines the association between small audit firm membership in an association, network, or alliance (collectively referred to as an "association''), audit quality, and audit fees. We find that small audit firm association members provide higher-quality audits and charge higher fees than small audit firms that are not members of an association. When compared to similarly sized clients audited by the Big 4, we find that member firms provide audit quality similar to the Big 4 firms, but member firms charge lower fees than their Big 4 counterparts. We caution that these results may not be generalizable to the largest Big 4 clients for which there is not a similarly sized client audited by our sample of small audit firms. We infer audit quality from Public Company Accounting Oversight Board inspections, restatement announcements, and discretionary accruals. Our findings should be of interest to audit committees in charge of auditor selection and to small audit firms interested in the benefits of association membership.