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Measuring Audit Quality

Shivaram Rajgopal - Suraj Srinivasan - Xin Zheng

eBook Edition: 2018

This study first provides detailed descriptive analyses on 45 specific audit deficiency allegations based on GAAS as detailed in AAERs and securities class action lawsuits over the violation years 1978-2015, and then uses these allegations to validate existing popular proxies of audit quality. Of all the audit quality proxies, we find that restatement fares the best as it consistently predicts all the top six most cited audit violations. Additionally, audit fees to total fees ratio and city specialist predict five of the most cited violations. Overall, our results suggest that the predictive power of audit quality proxies depends on the settings that researchers are interested in, and on the specific audit violations hypothesized to matter in the investigated setting. For example, for future studies related to auditor independence, we recommend the use of restatement and audit fees to total fees ratio as proxies of audit quality. (From Author)

eBook License: Copyright from University of Hawaii

Free eBook in PDF format – 64 pages – 835 Kb