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Measuring audit quality

Author

Listed:
  • Shivaram Rajgopal

    (Columbia University)

  • Suraj Srinivasan

    (Harvard University)

  • Xin Zheng

    (University of British Columbia)

Abstract

We document 45 specific allegations related to audit deficiencies based on GAAS, as detailed in 141 AAERs and 153 securities class action lawsuits over the violation years 1978–2016. Next, we use these allegations to validate popular proxies of audit quality. Of all the audit quality proxies, we find that restatements consistently predict all of the top six most cited audit deficiencies. The ratio of audit fees to total fees and the presence of a city specialist auditor predict five of the most cited deficiencies. Overall, our results suggest that the predictive power of audit quality proxies depends on (i) the settings that researchers are interested in and (ii) the specific audit deficiencies hypothesized to matter in the investigated setting. For instance, future studies related to auditor independence might consider using restatements and the ratio of audit fees to total fees as proxies of audit quality.

Suggested Citation

  • Shivaram Rajgopal & Suraj Srinivasan & Xin Zheng, 2021. "Measuring audit quality," Review of Accounting Studies, Springer, vol. 26(2), pages 559-619, June.
    • Handle: RePEc:spr:reaccs:v:26:y:2021:i:2:d:10.1007_s11142-020-09570-9
    DOI: 10.1007/s11142-020-09570-9
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    References listed on IDEAS

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    Cited by:

    1. Anastassia Fedyk & James Hodson & Natalya Khimich & Tatiana Fedyk, 2022. "Is artificial intelligence improving the audit process?," Review of Accounting Studies, Springer, vol. 27(3), pages 938-985, September.
    2. Mowchan, Michael J., 2023. "Do accounting firms change strategy through office managing partner appointments? Evidence from the U.S," Accounting, Organizations and Society, Elsevier, vol. 108(C).
    3. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    4. Kose John & Min (Shirley) Liu, 2021. "Does the Disclosure of an Audit Engagement Partner’s Name Improve the Audit Quality? A Difference-in-Difference Analysis," JRFM, MDPI, vol. 14(11), pages 1-30, October.
    5. Kevin Koh & Li Li & Xuejiao Liu & Chunfei Wang, 2023. "The Effect of Audit Partner Diversity on Audit Quality: Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 59(1), pages 340-380, March.
    6. Isaac Selasi Awuye, 2022. "The impact of audit quality on earnings management: Evidence from France," Post-Print hal-03824396, HAL.

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