Article

China Accounting and Finance Review

, 16:21

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Client Importance: A Measurement Bias and Its Impact *

  • Xi WuAffiliated withSchool of Accountancy, Central University of Finance and Economics Email author 
  • , Tiebing ZengAffiliated withRegistration Department, Chinese Institute of Certified Public Accountants
  • , Chunfei WangAffiliated withSchool of Accountancy, Central University of Finance and Economics

Abstract

The impact of client importance on audit quality has long been attracting academic and regulatory attention. When measuring client importance, however, researchers usually use the economic benefits from all listed clients (rather than all clients) as a proxy for the revenue base of client importance. Taking advantage of a unique set of data from the Chinese Institute of Certified Public Accountants (CICPA), this study examines the potential impact of such measurement bias on empirical findings. Using the association between client importance and accrual-based earnings management as the test scenario, our evidence shows that when evaluating the economic consequences of client importance, the use of a complete client base in measuring client importance leads to a discernibly different interpretation to that produced using an incomplete client base. Moreover, the measurement bias also has a discernible impact on the interpretation of empirical results at the audit firm office level.

Keywords:

Audit Firms Client Importance Audit Quality Measurement Bias