Discuss the importance of a firm’s size for audit of financial statements and audit quality.

1. ‘Relative to the size of their clients, smaller accounting firms have higher litigation rates and are the subject of more SEC enforcement actions’ (DeFond and Francis, 2005: 22). Discuss the importance of a firm’s size for audit of financial statements and audit quality.

2. ‘In calling on academics to “fix” the auditing profession we feel it is important to recognize that there is an inherent threat to our own independence when we investigate the auditing profession. This threat arises because the auditing industry hires our students, makes donations to our departments and schools, funds professorships and chairs, gives us subjects for experiments and proprietary data, and hires us as expert witnesses. All of these factors create a cosy relationship and a temptation for auditing researchers, referees and journal editors to adopt a sympathetic view to the profession, and while such sympathy might be driven by a rational fear of “biting the hand that feeds us”, succumbing to this sympathy would seriously erode our intellectual integrity. If auditing researchers become apologists for the auditing profession then we are doing the profession, our students, society and ourselves, a huge disservice’ (DeFond and Francis, 2005: 10). Comment on this statement. How can audit education and research contribute to enhancing audit quality and auditor performance?

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