Audit quality: what’s important to users of audit services

Abstract

Purpose – This paper aims to investigate the relative importance of audit-team and audit-firm attributes in perceptions of audit quality by two groups of users of audit services: audit committee chairs/members (“insiders”) and financial analysts/fund managers (“outsiders”). Design/methodology/approach – Using a survey questionnaire, data are gathered from 39 audit committee chairs/members and 42 financial analysts/fund managers and analysed using adaptive conjoint analysis. Findings – The findings reveal that both groups perceive audit-team attributes as relatively more important than audit-firm attributes. This is consistent with expectations for “insiders”, but inconsistent with expectations for “outsiders”. Differences are also found in the internal ratings of some of the attributes, with “insiders” and “outsiders” placing different relative importance on some attributes. Research limitations/implications – The usual set of limitations that are present in a survey method also apply in this study, i.e. surveys rely on reports of behaviours rather than observations and are therefore susceptible to measurement error. A further limitation is that, in using adaptive conjoint analysis, the number of attributes that may be included in the survey is restricted and, consequently, the attributes selected may not be comprehensive or fully representative. Originality/value – The study extends the scope of prior studies by examining the relative importance of audit-team and audit-firm attributes in perceptions of audit quality. In using conjoint analysis, the study makes a unique and innovative contribution by providing direct evidence on the relative importance of attributes in perceptions of audit quality for different users of audit services. The findings have implications for regulators and the accounting profession concerned with improving confidence in corporates and for audit firms in monitoring and promoting the quality of their audit services.

Attributes and Drivers of Audit Quality: The Perceptions of Quality Inspectors in the UK

“…Prior research shows other key constituents of audit market such as audit clients and audit committees perceived highly a range of auditor's characteristics attributed to audit quality (Carcello et al 1992;Kilgore et al 2014). However, findings of this study show quality inspectors rated performance of the audit and various 'compliance' requirements as key attributes of audit quality.…”

“…Their views should also be considered because understanding each other's view and how one's actions may impact on others' perceptions of audit quality is critical to efforts to enhance audit quality (IAASB 2011). Second, prior behavioural research has tended to focus on the effect of the audit team, and audit firm attributes on audit quality (Carcello, Hermanson & McGrath 1992;Kilgore, Harrison & Radich 2014). This study extends the scope of the investigation by examining broader aspects attributed to audit quality including the internal and contextual factors.…”

“…Consequently, various approaches have been used to measure audit quality involving a combination of inputs measures (size of audit firms, audit tenure and non-audit services) linked to the audit outcomes (financial reporting quality-earnings management and accurate audit opinion) (Gul, Sun & Judy 2003;Ruiz-Barbadillo, Gomez-Aguilar & Fuentes-Barbera 2004), process measures that are related to auditor performance (Sutton 1993;Knechel et al 2013), and behavioural studies that capture perceptions of users and preparers of financial statements on audit quality attributes (Carcello et al 1992;Kilgore et al 2014). The behavioural studies assess audit quality by examining attributes perceived to be associated with audit quality (Kilgore, Radich & Harrison 2011) A large volume of the academic research employs the definition proposed by DeAngelo (1981) in investigating audit quality, in which the concept of audit quality is related to the ability of the auditor to detect material misstatements (competence) and to report it (independence) during the course of the audit.…”

The Changing Face of the Auditor's Report: Implications for Suppliers and Users of Financial Statements

“…Audit quality is a complex and multi‐faceted concept and different stakeholders have different perspectives on it (Kilgore et al. ). The audit report and related auditor communications can influence audit quality; thus, an audit report that clearly conveys the outcome of an audit is likely to positively influence audit quality (Knechel et al.…”

Adaptive conjoint analysis: A new approach to defining corporate governance

“…Chi and Huang (2005),Fargher, Lee, and Mande (2008),Gates, Lowe, and Reckers (2007),Kilgore et al (2011Kilgore et al ( , 2014 andMonroe and Hossain (2013) have operationalized audit partner tenure as the length (in years) of the auditor engagement between audit partner and clients.…”