Audit Quality: Insights from the Academic Literature

Knechel, W. Robert; Krishnan, Gopal V.; Pevzner, Mikhail; Shefchik, Lori B.; Velury, Uma

doi:10.2308/ajpt-50350

Cited by 550 publications

(544 citation statements)

References 284 publications

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“…The PCAOB (2015a) stated that ''the hours that levels of an audit team devote to risk areas can suggest whether audit managers have staffed the audit appropriately to reflect the risk areas identified during the planning phase of the audit, and the extent to which senior members of the team have focused sufficiently on those areas.'' This position is supported by prior research indicating that higher audit budgets positively affect audit quality (e.g., see Knechel et al [2013] for a review). For example, research has indicated that time budget pressures may result in trade-offs of audit effectiveness for efficiency (McDaniel 1990) and increase the likelihood of reducing audit quality by acts such as signing off on audit workpapers prematurely, or failing to perform necessary audit steps (e.g., Alderman and Deitrick 1982;Kelley and Margheim 1990;Reckers, Wheeler, and WongOn-Wing 1997;Asare, Trompeter, and Wright 2000;Agoglia, Hatfield, and Lambert 2015).…”

Section: Fair Values and Audit Planningsupporting

confidence: 71%

“…More specifically, the PCAOB stated that the amount and allocation of hours to various parts of the audit convey the effort put forth by the auditor, all of which are important inputs into audit quality. This position is supported by prior research (e.g., see Knechel, Krishnan, Pevzner, Shefchik, and Velury [2013] for a review). We propose that two key features fundamental to the auditing context-the framing of audit steps and the perceived verifiability of the performance quality of audit steps-may affect audit budgeting judgments.…”

Section: Introductionsupporting

confidence: 57%

“…We focus our results and perform our tests and analyses using the first measure of audit hours: budgeted hours given low-efficiency pressure. However, we also report whether the results hold under high-efficiency pressure, which is common to audit environments (see Knechel et al [2013] for a review).…”

Section: Dependent Variablesmentioning

confidence: 99%

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Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Maksymov

Nelson

Kinney

2017

Behavioral Research in Accounting

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Auditors must ensure that their audit plans budget sufficient time for key audit steps. Research has shown that insufficient audit time budgets can be detrimental to audit quality. We examine whether framing audit steps negatively (e.g., assess whether management's assumptions are not appropriate) increases time budgetsparticularly for steps in which the auditor perceives that performance quality is less verifiable, and thus most at risk of being performed with low quality. First, we report the results of analyses indicating that, in practice, audit steps are predominantly framed positively, potentially resulting in smaller time budgets. We then report the results of an experiment in which 50 experienced audit managers budget time for an audit program that tests a Level-3 fair-value estimate. Prior research and Public Company Accounting Oversight Board (PCAOB) inspections indicate that this is a challenging audit area, vulnerable to allegations of low audit quality. The results support our predictions and suggest that reframing audit steps negatively would increase audit time budgets-an audit quality indicatorparticularly for less-verifiable steps.

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Section: Fair Values and Audit Planningsupporting

confidence: 71%

Section: Introductionsupporting

confidence: 57%

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Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Maksymov

Nelson

Kinney

2017

Behavioral Research in Accounting

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“…However, it is often argued that AQ is a difficult concept to define and it has been claimed that it is difficult to measure (Colbert & Murray, 1999;Francis, 2011;Knechel et al, 2013). However, it seems uncontroversial to state that AQ has to do with auditor effort (e.g.…”

Section: Theorymentioning

confidence: 99%

Explaining the influence of time budget pressure on audit quality in Sweden

et al. 2016

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This paper is aimed at explaining how time budget pressure influences audit quality in the Swedish context. A hypothesis is deduced and tested through a survey sent to Swedish auditors.The Swedish context provides a special setting since audit firms and auditors have been facing new pressures due, for example, to the removal of statutory audits for a majority of the companies in Sweden. The findings show that time budget pressure lowers the quality of audits performed by Swedish auditors, but it is not the only explanation. Audit quality is also related to other factors such as gender, position, experience, number of clients, local office size and audit firm. Thus, the model is useful for explaining the factors influencing audit quality and could be used and expanded in future studies. The study also has practical implications showing that when trading-off between audit efforts and available resources and setting time budgets for each audit assignment, audit firms should also consider the personal characteristics of the auditors.

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“…Research has shown that financial market participants reward companies that employ high-quality auditors (Barton, 2005;Knechel, Krishnan, Pevzner, & Stefchik, 2013). A necessary condition, however, is that the audit quality among audit firms can be differentiated.…”

Section: Recognition Of Peer Reviews and Inspections In Decision-makingmentioning

confidence: 99%

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

Löhlein

2016

Journal of Accounting Literature

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This study reviews the existing literature on the U.S. peer review system and the Public Company Accounting Oversight Board (PCAOB) inspection system to assess our knowledge of audit regulation. The traditional self-regulatory system of the accounting profession came to an end, in 2002, when the PCAOB was established to oversee the audit firms of publicly traded companies. This paper contributes to the controversial debate about self-regulation versus independent regulation by analyzing, categorizing, and comparing the research findings on the peer review system and the PCAOB system along three dimensions: the validity of peer reviews and PCAOB inspections, the recognition of reviews and inspections by decision-makers (e.g. investors, bankers, committees), and the effect of reviews and inspections on audit quality. Synthesizing the research on the regulatory regimes suggests that the notion of external quality control, both through peer reviews and government inspections, is positively linked with an improvement of audit quality. At the same time, the analysis indicates that external users do not seem to recognise peer review and PCAOB reports as very useful instruments for decision-making, which is in line with an identified rather skeptical perception of the audit profession on reviews and inspections. Overall, this study reveals that although the academic literature on peer review and PCAOB inspection is extensive it has not produced definitive conclusions concerning various aspects of audit regulation. This paper shows how this blurred picture is due to conflicting research findings, the dominance of the quantitative research paradigm, and unchallenged assumptions within the literature, and concludes by proposing research opportunities for the future.

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Audit Quality: Insights from the Academic Literature

Cited by 550 publications

References 284 publications

Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Explaining the influence of time budget pressure on audit quality in Sweden

From peer review to PCAOB inspections: Regulating for audit quality in the U.S.

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