Audit Planning Effectiveness, Audit Quality and Audit Fees

• In Event: Research in Auditing

Abstract

We investigate the implications of effective audit planning for audit-office performance. We proxy for audit planning effectiveness using measures of audit completion variance (ACV), defined as year over year changes in the sequence and length of audit offices’ public client audit completion dates. After controlling for possible audit-market, institutional, and client-factors that may affect ACV, we show that ACV is most strongly related to audit office characteristics that could negatively affect, or are reflective of less effective, audit planning. We then show that ACV is negatively associated with audit quality and positively associated with audit fees. In additional tests, we document an incrementally stronger effect between ACV and audit quality/audit fees for complex engagements but find weak effects for new clients. We conclude that cross-sectional variation in ACV is driven primarily by differences in how well audit-offices plan their audits, which affects audit quality, and audit effort.

Authors

• Jamie Hoelscher, Southern Illinois University - Edwardsville

• Michael J Imhof, Wichita State University

• Scott E Seavey, Florida Atlantic University