Audit Office Closure Risk and Audit Outcomes

TR Number



Journal Title

Journal ISSN

Volume Title


Virginia Tech


This study aims to better understand factors associated with audit office closures and how the risk of office closure relates to audit outcomes, including audit quality and fees. Factors associated with office closure include small office size, lower office growth, proximity to regulators, unfavorable local economic changes, client losses, and lack of recent local office closures. The main analysis does not find evidence of a relationship between closure risk and audit quality but suggests that offices with a higher closure risk charge higher audit fees per client compared to offices with lower closure risk. Results also suggest that clients who change audit firms following closure of their auditor's office enjoy higher quality and lower fees compared to those clients who change offices but remain with the same firm following closure. These audit quality results cannot be explained by clients switching to Big 4 auditors, industry specialists, or to more geographically proximate offices. Instead, these results suggest a fresh look benefit by the new audit firm. Additionally, the audit fee discount enjoyed by these clients diminishes over time as the fees for these clients increase more quickly than for those clients that change offices following closure.



audit offices, office closure, audit quality