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The purpose of this paper is to examine the effects of audit failure on Big 4 audit firm monitoring activities. The paper analyzes changes in discretionary accruals (DAs) among clients of firms implicated in audit failure events and examines whether these DAs decline in the period following the event.

The paper uses archival data and regression analyses to test whether DAs for clients of implicated audit firms decline in the period following the audit failure as compared to clients of other Big 4 firms. Audit failures are identified during the years 1996‐2004 based on significant lawsuit settlements. The paper focuses on an office‐level analysis to control for audit quality differences which may vary across firm geographic locations as suggested by recent research.

Empirical results indicate that auditor response to audit failure has changed over time. Auditors implicated in audit failure events occurring in the post‐Enron and Sarbanes‐Oxley period enforce more conservative accounting choices in the year following the event. Specifically, clients of the implicated firm's office report a significant decline in discretionary accounting accruals relative to clients of other auditors in the same city location. However, a significant change in client discretionary accounting accruals is not found following audit failures that occurred prior to 2001, the year of the Enron bankruptcy.

The results of this paper extend the knowledge of the effects of litigation pressure on audit quality. Additionally, this paper helps address the question of how large‐scale audit failures witnessed at the beginning of the century have impacted audit firm conservatism.

Purpose – This study examines the relationship between Big Four audit firm country-level market shares and audit fees across a sample of nine emerging economies: Argentina, Brazil, Chile, Hong Kong, Israel, Korea, Mexico, South Africa, and Taiwan.

Design/methodology/approach – First, auditor market share is calculated as a percentage of client sales based on all publicly traded companies in each of the sample countries during the period 2002–2005. Next, Audit Analytics is used to obtain audit fee data for a set of foreign companies listed on a primary U.S. exchange. A final sample of 483 client-year observations is included in the audit fee regression analysis.

Findings – After controlling for other factors related to audit pricing, Big Four auditors with dominant country-level market shares earn a fee premium of approximately 27% over competitor firms.

Originality/value – These results suggest that individual Big Four firm reputations, as measured by fee premiums, are not homogeneous across countries. Rather, it appears the largest audit firms are associated with quality-differentiated services and thus earn higher fees. Although accounting research tends to classify large international accounting firms into a pool of the “Big Four,” these findings indicate that it is important to consider each firm's market share in specific geographic locations when examining questions related to auditor reputation and pricing.