AAA Spark Meeting of Regions

Audit Efficiency and Audit Quality: Office-Level Evidence

• In Event: Office and Employee Characteristics and Audit Quality

Abstract

We examine how office-level audit efficiency, defined as how well an audit office plans and manages the audit process for its portfolio of clients, relates to audit quality. To do so, we propose two measures of office-level audit efficiency based on the concept of audit completion variance (ACV). We demonstrate that ACV is increasing in audit-office characteristics that may reduce, or reflect lower, audit efficiency (and only marginally associated with audit-market, institutional and client factors). Additionally, ACV is increasing in the number of major client events, such as CEO/CFO turnover, and client characteristics, such as high levels of intangible assets, that could disrupt an office’s ability to manage the audit process for its overall portfolio. We show that both measures of ACV are associated with lower audit quality, and that the ACV-audit quality relation is incrementally stronger for complex engagements. We conclude that office-level audit efficiency affects audit quality, and that measures of ACV can serve as proxies for audit efficiency in archival-based audit research.

Authors

• Jamie Hoelscher, Southern Illinois University - Edwardsville

• Michael Imhof, Wichita State University

• Christine Porter, Wichita State University

• Scott Seavey, Florida Atlantic University