Go to main content
Formats
Format
BibTeX
MARCXML
TextMARC
MARC
DublinCore
EndNote
NLM
RefWorks
RIS

Files

Abstract

This study provides new evidence on factors that affect audit quality among U.S. clients of Big 4 audit offices during 2003-2014. We test whether offices vary in audit quality, as measured by client restatements and SEC comment letters. We find significant variation across offices, both before and after controlling for client risk. Our tests control for client risk via a synthetic office, a benchmark of similarly risky clients of different auditors. We next study whether variation in audit office quality is related to office-level or broader norms concerning misconduct using two research designs. The first of these uses additional language in the audit opinion as a proxy for the auditor’s willingness to report unfavorable information, and tests how this willingness to voice concerns is related to restatement rates and frequency of comment letters. The results do not support the conjecture that audit offices exhibiting greater willingness to voice concerns provide higher quality audits. The second design examines how audit office restatement and SEC comment letter rates vary with a measure of regional ethical norms. Taken as a whole, our findings indicate that audit quality in Big 4 firms varies significantly across offices, and is partly explained by proxies for regional ethical norms.

Details

PDF