Assessing Initiatives to Improve the Quality of Group Audits Involving Other Auditors

• In Event: Challenges/Constraints to Audit Quality

Abstract

One of the major current concerns of regulators internationally is the quality of the auditing of multinational groups, particularly those involving the co-ordination by the principal auditor of other auditors. These concerns resulted in changes to international auditing standard on group audits, ISA 600, which are consistent with current initiatives being considered by the PCAOB. We examine audit quality pre and post ISA 600 to help inform the IAASB as to the efficacy of the ISA 600 amendments and inform the PCAOB with regard their similar initiatives under consideration. We make use of unique Australian disclosures which allow us to identify the nature and extent of involvement of other auditors in group audits. We identify lower audit quality pre-revised ISA 600 which was most pronounced for MNE group audits involving other auditors from the same audit firm network. We further find that the revisions to ISA 600 have contributed to an improvement in audit quality, specifically for non-Big N auditors, but quality issues when using other auditors from the same audit firm network continue to exist. Consistent with regulatory concerns, we also examine whether there are any incremental costs for group audits involving other auditors. While we find that group audits involving other auditors are more costly, we do not find evidence of an additional impost on audit fees resulting from these regulatory initiatives.

Authors

• Elizabeth Carson, University of New South Wales

• Roger Simnett, UNSW Australia

• Ann Vanstraelen, Universiteit Maastricht

• Gregory M Trompeter, University of Central Florida