The Production of Audit Services: Evidence from a Major Public Accounting Firm

In this research, we examine the empirical relation between client characteristics and the nature and mix of labor resources used by an international CPA firm to obtain a desired level of assurance that clients' financial statements are free of material misstatement. The level of assurance is the output of an audit, while the input resources measure the effort required to produce that output, under varying client circumstances. We use disaggregated labor hours by rank within the firm (partner, manager, senior, and staff) as the measure of inputs, in order to examine how client characteristics affect both the amount and mix of labor used. To the extent that client characteristics have differential effects on the various types of labor, only disaggregated data can reveal changes in labor mix and may also provide a more powerful test (relative to tests