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Technical Inefficiency, Allocative Inefficiency, and Audit Pricing
Journal article   Peer reviewed

Technical Inefficiency, Allocative Inefficiency, and Audit Pricing

Hsihui Chang, Yi-Ching Kao, Raj Mashruwala and Susan M. Sorensen
Journal of accounting, auditing & finance, v 33(4), pp 580-600
01 Oct 2018
DOI: https://doi.org/10.1177/0148558X17696760

Abstract

Business & Economics Business, Finance Social Sciences
The critical global role of audit firms, combined with the scarcity of qualified staff and downward pressure on fees, has increased the importance of understanding efficiency in this industry. This article examines the technical and allocative inefficiencies of audit firm staffing using data from 165 audit engagements performed by a Big 4 international certified public accountant (CPA) firm. Prior research has shown that the technical inefficiency of audit engagements leads to lower billing realization rates on audit engagements. We complement and extend this research by examining whether there are inefficiencies in allocating staff for audit engagements in addition to technical inefficiency, and whether each of these inefficiencies leads to lower billing realization rates. We find that there are differences in both technical and allocative inefficiencies across audit engagements, and that both inefficiencies lead to lower billing realization rates after controlling for other characteristics that could affect the realization rates of the audit engagements.

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12 citations in Web of Science
11 citations in Scopus

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Domestic collaboration
International collaboration
Web of Science research areas
Business, Finance
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