Audit Quality and Accounting Conservatism

• In Event: SESSION 3C: Audit Quality and Conservation

Abstract

In this study we investigate the relation between audit quality and the degree of accounting conservatism. Specifically, we ask whether high quality auditors demand conservatism from their clients. We use auditor’s office size as our main measure of audit quality and Basu’s (1997) asymmetric timeliness measure as our main measure of accounting conservatism. . Using a sample of 44,138 firm-year observations for 7,800 unique firms for the period 2000 to 2010 we document that audit quality has a positive relation with accounting conservatism. Our main findings are robust to alternative measures of audit quality, accounting conservatism and endogenous effects.

Authors

• Yangyang Chen, Monash University

• Aditya Mohan Jadhav, Department of Accounting and Finance, IBS Hyderabad, Icfai Foundation for Higher Education University, Hyderabad, India

• Bin Srinidhi, University of Texas-Arlington

• Madhu Veeraraghavan, Monash University