Understanding Audit Quality: Insights from Audit Partners and Investors

• In Event: Auditor Impact on Investor Decisions

Abstract

The PCAOB provides information regarding audit quality through the release of its inspection reports, and the Board has recently discussed establishing audit quality indicators. To provide more inclusive evidence on audit quality, we obtain and analyze auditors’ and investors’ views, definitions, and potential measures of audit quality. We find differing definitions of audit quality between auditors (GAAS compliance) and investors (individual auditor competence), as well as differing views on the relation between PCAOB inspections and audit firm quality. We find agreement that auditor characteristics may be the most important determinants of audit quality, and that restatements may be the best available signal of low audit quality. We relate responses to a generally accepted audit quality framework and provide support for archival audit research. Taken together, we provide evidence regarding the construct of audit quality in the post-SOX environment, add substance to existing theoretical frameworks, and suggest avenues for future research.

Authors

• Brant Erich Christensen, Texas A&M University

• Steven M Glover, Brigham Young University

• Thomas C Omer, Texas A&M University

• Marjorie K Shelley, Texas A&M University