Differences between Big Four and Non Big Four in Auditing Area

The study also looks at the competition in the market that enhances a prevailing condition in which there is variation in prices in such cases where customers attach quality variance with different audits. The quality of audit offered by large independent audit firms has been found not to be higher than that of the smaller auditing firms as suggested by several researchers. The control of the technical capability of audit firm provides the better platform for measuring the remunerations since the big four reaps higher profit margin as compared with the non-big four audit firms. The fee that is required for auditing provides a similar pattern and provides that the big four audit firms invest in appropriate expertise that would result in the variation of audit quality within the privatized market segment.

Keywords: audit fee; audit quality; quality control; the cost of capital Audit quality for the big four and non- big four auditing firms The big four audit firms are the dominant audit companies in the global audit market among other audit corporations in the world while the non-big four audit firms are also referred to as Mid-tier firms which are ranging from small to middle firms offering the same auditing services. Therefore, an application of such simplification, the characterization of audit output is a verification of independence of financial data organized by the management thus it consists of an opinion stated by the audit firm (DeANGELO, 1981 pp 185). However, Hamuda and Sawan (2014 pp 162) note that since the big four audit firms have the reputation and larger size, they command considerable resources that enable them to provide higher quality audit, unlike their small sized counterparts who lack resources and manpower to invest in the high-quality audit.

The above discussion on the quality of audit is applicable to both big four and non big four auditing firms thus there is no difference on the quality of audit offered by both big four and non big four but it depends on the integrity, competency and personnel of the auditors and not the size of the firm. According to a research done by Eshleman and Guo, (2014) on the audit quality of both big four and non-big four firms, the duo points out that there is a similarity in the quality of auditing services delivered by the firms at both levels irrespective of the size of the firm since. The argument in support of this statement is that studies have found that the inherent endogeneity choice of the audit firms is not on the size and reputation but on the competence of the audit firm.

For the big fr firms, the audit fee saw a commencement in the reduction by 3. 76% in 2007 as the implementation of AS 5 recommendations induced further reduction of the audit fee by a considerably raised margin to 13. 54 percent in 2013 (Chan, DeBoskey, and Hee, 2012 pp 34). Despite the fact that the audit fee is controlled by the big four firms due to their scale of operability, the firms still feel the impacts of AS 5 in as much as the audit fee is driven by the big four firms. The small nature of the non-big four has not helped the firms to command the audit fee control. The localization of the strategies enhances increment of revenues for the firms. The standards of auditing are affected by conformity and adherence by the shareholders within the firm (Guo, 2016).

Controlling statutes and the maintenance of secrecy of the firm is the way forward for maintaining quality control for both big four and non-big four firms. Production of quality products y various businesses somehow affect the quality control of auditing for big four and mid-tier firms since the question of honesty is assumed to be paramount hence the auditing firms may be limited to providing quality control of several auditing practices. In contrary, quality control is not a dictate of hard work and service oriented exercise rather, it is the product of diligence, integrity and investing in qualified personnel. Owing to the sizes of these audit firms, the requirements in terms of capital investment ranging from the number of employees, the cost of capital investment of big four firms is higher than that of the mid-tier firms.

A number of jurisdictions have expanded their territories to offer their audit services to larger companies. The audit independence and regulation which requires rotation of personnel calls for a further capital investment since the companies will be fighting to retain top brains in the accounting sector to validate their services to their clients (Bagley, Dalton and Ortegren, 2012). Maintaining governance with a global network requires capital investment which non-big four firms might not be able to meet due to limited coverage and size of the firms. Since the cost for capital has deterred firms from achieving intended growth, the larger firms are at a better place for maintaining a consistent growth as a result of large size with complexity in balancing the community they serve.

The variation in the cost of capital for auditees of big four in America is contributed by the fact that America has set rules and regulations that constrain the big four auditing firms to conform with strict observance of the auditing rules. The rules have enhanced in the diversification and delegation of responsibilities thus has ensured there is ease of capital investment in the audit firm. The cost of capital in big four and non-big four, investment in technology and innovation, as well as the experience and personnel, play an integral part in the auditing firm. Therefore, the cost of capital is deemed to e huge for an auditing firm to meet all the criteria required of them by the law.