Firm Size and Audit Regulation and Fraud Detection: Empirical Evidence from Iran

Abstract

An auditor has the responsibility for the prevention, detection and reporting of fraud, other illegal acts and errors is one of the most controversial issues in auditing, and has been one of the most frequently debated areas amongst auditors, politicians, media, regulators and the public (Gay et al 1997). Prior research has documented a positive association between audit quality and auditor size. While some studies have used audit fee as a surrogate for audit quality, other studies have employed more direct measures, such as the outcomes of quality control reviews. Those latter studies, however, used samples that suffer from severe geographic or client type restrictions. Moreover, most studies of the quality-size relationship have focused on relatively large CPA firms. In recent years there has been considerable debate about the nature of audit practice (Salehi, 2007). Auditors also have responsibility regarding accuracy and precise of statements prepared by managers.