David versus Goliath: The Relation between Auditor Size and Audit Quality for U.K. Private Firms

We examine the relation between auditor size and audit quality for a sample of U.K. private firms. Private firms prioritize tax considerations over reducing information asymmetry in their financial reporting. find that Big 4’s clients exhibit higher levels discretionary accruals lower precision accrual estimates than non-Big clients. Although 4 auditors are less tolerant income-increasing earnings management, they leave more room downward management able to engage greater avoidance. These results stronger standalone business groups as latter’s demand stakeholder communication motivates increase quality. Collectively, our evidence suggests adjust competitive segment market where client generally perceive benefit from minimization outweigh cost reduced informativeness.