The Development of Audit Quality Indicators

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Abstract

In an effort to restore the public’s confidence in the accounting profession and enhance audit quality, U.S. Congress passed the Sarbanes-Oxley Act of 2002. Under the Sarbanes-Oxley Act of 2002, the responsibilities of the Public Company Accounting Oversight Board (PCAOB) “are all ultimately directed at improving audit quality and thereby benefiting investors” (PCAOB 2015a, 2). With these responsibilities, the PCAOB has adopted a project that focuses on identifying audit quality measures, known as the audit quality indicators (AQI) project. Thus far, the Board has identified over 70 possible AQIs, primarily based on previous studies regarding audit quality. Past research has mainly focused on input-based factors such as audit fees, audit partner tenure, and audit firm size. To further understand the correlation between audit quality and input-based factors, this paper will examine past research studies related to each of the aforementioned factors. By gaining a stronger understanding of these past studies, one will be able to understand the PCAOB’s logic for identifying the possible AQIs.

Authors

• Jenna M. Lehkamp, Western Kentucky University

• Harold T Little, Western Kentucky University