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The purpose of this study is to examine the association between auditor industry specialization and accounting quality in the European Union (EU).

This study employs a difference-in-differences design and explores audit quality from different industry specialist perspectives and different accounting standard regimes. Specifically, this study examines accounting quality among audits performed by non-industry specialists, EU member country-level industry specialists (EUM-level), EU community-level industry specialists (EUC-level), as well as joint industry specialists.

This study finds evidence of an improvement in accounting quality among audits performed by non-industry specialists post-IFRS. There is also evidence of an improvement in accounting quality among audits performed by EUC-level industry specialists post-IFRS. In addition, accounting quality among audits performed by EUM-level industry specialists seems to be greater than that of audits performed by non-industry specialists in either the pre-IFRS period or the post-IFRS period. Overall, the mandatory adoption of IFRS in the EU appears to be associated with an improvement in accounting quality among some auditor groups.

Industry specialization and accounting quality are not directly observable constructs; this study inevitably employs proxy measures for both. The findings of this study are location-specific and apply to mandatory IFRS adopters only.

This study informs regulators with respect to the importance of industry specialist auditors and financial reporting quality, particularly within the context of the EU. The findings suggest that industry specialists were a significant accounting quality determinant during the mandatory adoption of IFRS. The findings have implications for regulators in the EU and beyond.

This study is among the first to investigate the impact of auditor specialization on accounting quality in the EU, particularly in connection with the adoption of IFRS.

The purpose of this paper is to report findings of audit quality differences amongst audit firms in a developing country. Specifically, the authors examine the assumption of marked audit quality differences amongst large audit firms (Big 4s) and the small and medium practices (SMPs).

First, the authors develop scales for assessing perceived audit quality in the financial services sector based on qualitative data obtained from 106 audit practitioners, 31 credit analysts and 13 board members. The authors use NVivo© to analyse the 13 transcribed interviews and follow “cross-case analysis” to visualize dimensions and scales of audit quality. Then the authors use measurement scales developed and obtain quantitative data from 183 board members and top executives in the financial services sector and test for perceived audit quality differences amongst audit firms using a Mann-Whitney U test.

The findings suggest that audit quality is a multi-dimensional construct comprising of levels of discretionary accruals; compliance of audited accounts to accounting standards, law and regulations; and audit fees. Based on these measures, the authors find that Big 4 audit firms ensure more compliance with accounting standards, law and other regulatory requirements than SMPs. However, taking all the three audit quality dimensions together reveals no significant differences in audit quality levels between Big 4 and SMPs.

In terms of auditor selection and retention, it is important that audit firms are assessed based on their ability to constrain discretionary accruals, to produce audited accounts that comply with requirements of accounting standards, the law and regulations; and to examine the fees they charge in relation to quality of service, than on their size. Also, as the results of this study suggest that Big 4 audit firms might be needed for compliance with accounting standards, law and other regulatory requirements, their audit ties in with the most basic level of auditing requiring probity and legality which, in practice, requires a low level of judgement to be exercised by those performing the audit. It might be useful for Big 4 and other audit firms to embark also on higher level of auditing requiring higher level of judgement. Future research may wish to examine auditing firms’ proclivity to higher level judgment audit.

Previous research reveals no consistent way of measuring audit quality and has been inconclusive on the subject of audit quality differential amongst audit firms. The authors create audit quality scales which can be used in assessing perceived audit quality in a developing country context and provide initial evidence of no significant differences between large audit firms and the SMPs regarding audit quality in Uganda.

There has been growing concern worldwide regarding audit quality in Japan after the Kanebo and Olympus accounting scandals. The purpose of this paper is to examine the Japanese audit market from 2001 to 2011 to determine whether audit quality differs between Big N and Non-Big N audit firms and whether this difference, if existed, changed during 2007 when the number of big audit firms declined from four to three and the requirements of audit quality became more rigorous.

This study employs a sample of Japanese listed firms from fiscal year 2001 to 2011. Five proxy variables for audit quality are used and the data are analyzed using the propensity score matching method.

The authors show that irrespective of their size, all audit firms in Japan provide the same quality of service, when controlling for client characteristics including keiretsu, foreign sales ratio and bankruptcy risk measured in Japan. Additionally, the results suggest that although only three major audit firms remain in the Japanese audit market after the dissolution of PricewaterhouseCooper’s Chuo-Aoyama firm in 2007, the audit quality difference between Big N and Non-Big N remained unchanged before and after 2007.

The study contributes to the lack of existing empirical evidence on audit quality in Japan, a country characterized with low audit litigation risk and more emphasis on auditor reputation, given the influence of the notable change in Japanese audit market competition from Big 4 to Big 3. The study’s research design contributes to the extant literature by using multiple proxies of audit quality.

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”).

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.

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.

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.

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.

The purpose of this paper is to investigate the direct and indirect links between book-tax differences (BTDs) and audit quality using accounting conservatism (proxy of earnings quality). Hence, this paper seeks to extend prior audit quality research.

This study uses a sample of Tunisian listed firms on the Tunis Stock Exchange and operating in the industrial and commercial sectors during 2005-2012. This investigation is motivated by structural equations system models that specify both a direct link and an indirect link that is mediated by information reflected in BTDs.

The results show that for the Tunisians companies, firms with large BTDs are associated with higher audit quality implies that such BTDs represent an observable proxy for earnings quality that affects auditor decisions. The authors find statistically an indirect link between abnormal BTDs and audit quality that is mediated by earnings quality. The current study also provides evidence that information reflected in BTDs can improve audit quality.

The findings may be of interest to the academic researchers, practitioners and regulators who are interested in discovering the informational value of BTDs in the audit process.

This paper extends the existing literature by examining the mediation effect of information reflected in BTDs on relationship between BTDs and audit quality.

The purpose of this paper is to investigate the extent to which the transition from self-regulation to heteronomy has changed the gap in audit quality between Big Four and non-Big Four auditors.

This study analyzes publicly held companies in the USA between 1999 and 2012 using univariate analysis, multivariate analysis and quantile regression analysis. Audit quality is measured with discretionary accruals.

This study shows an insignificant difference in audit quality between the clients of Big Four and non-Big Four auditors after Public Company Accounting Oversight Board (hereafter, PCAOB) began its operations. In the analysis of the effects of PCAOB inspections on the audit quality of audit firms that are inspected annually and triennially, the findings show that the inspections have more positive effects when carried out annually. This suggests that the frequency of inspection is positively associated with audit quality. Overall, these results provide evidence that recent improvements in audit quality have been caused by changes in regulatory standards.

The paper provides three major original contributions. First, the authors add to the literature on audit quality by further demonstrating a reduced gap in audit quality between Big Four and non-Big Four audit firms due to heteronomy. Secondly, this study contributes to the debate as to whether independent inspections on audit firms are beneficial or not and suggests that the PCAOB inspections help increase audit quality. Finally, the results of this work contribute to the growing literature examining discretionary accruals.

The purpose of this paper is to examine the effect of audit quality on firms’ compliance with IFRS for goodwill impairment testing and disclosure. Differences in the compliance among the clients of Big-4 auditors and between the clients of Big-4 and non-Big-4 auditors are examined. This study also examines the effect of audit committee (AC) members’ accounting and finance backgrounds on firms’ compliance with IFRS for goodwill impairment testing and disclosure.

Different univariate tests, multivariate regressions and fixed effect panel regressions have been used to examine the hypotheses. The sample includes 911 firm-year observations for the period of 2006-2009.

A statistically significant difference in compliance levels has been found between the clients of Big-4 and non-Big-4 auditors. The compliance levels of the clients of Big-4 auditors have also been found to be significantly different. The findings also suggest that AC members’ accounting and finance backgrounds are positively associated with firms’ compliance with IFRS for goodwill impairment testing and disclosure.

The single country context and the single standard context limit the generalizability of the findings.

The findings of this study have important implications for researches in accounting, finance and corporate governance that usually consider Big-4 auditors vs non-Big-4 auditors as a proxy for audit quality. The results also reinforce the importance of developing institutional mechanisms such as high-quality auditing or corporate governance (AC members’ expertise) to encourage firms’ compliance with IFRS.

Firms’ compliance with IFRS for goodwill impairment testing is not essentially the same for the clients of all Big-4 auditors in Australia, suggesting that the quality of services provided by Big-4 auditors significantly differ from one another in enforcing their clients to compliance with IFRS. The lax enforcement on the part of auditors and the regulatory inaction in this regard may point to teething difficulties and systematic deficiencies in the move towards the impairment regime and fair value accounting. The findings also bear an important message for the move towards the harmonization of accounting practices.

This paper aims to examine whether Andersen’s audit quality in the five years preceding its collapse lagged that of other Big-Five auditors.

This paper compares Andersen’s audit quality and the other Big-Five auditors using five methodologies, namely, earnings response coefficients, magnitudes of abnormal accruals, propensities to issue going-concern opinions, usefulness of going-concern opinions in predicting bankruptcy and the frequency of Accounting and Auditing Enforcement Releases. The comparisons are based on both pooled samples of all observations and propensity-score-based matched-pairs.

The preponderance of evidence shows that Andersen’s audit quality did not differ materially in audit quality from other Big-Five auditors prior to its failure. However, it was found that Andersen’s independence was compromised in the year leading to its collapse (2000), as indicated by the lower likelihood to issue going-concern opinions.

This paper complements and improves on Cahan et al. (2011) by using more measures of audit quality, as no one measure is perfect, showing that their results using discretionary accruals are sensitive to the model used and showing that there is a more powerful direct measure of audit quality, namely, going-concern opinions.

Statistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation window (i.e. 2016 to 2019) 116 firms switched from joint-to solo-audits. Level and change models test if audit quality (proxied by abnormal accruals) is impacted by joint-/solo-audit switching. Therefore this paper explores the audit quality following abolition of mandated joint-audits in Kuwait.

This paper investigates the impact on audit quality following abolition of mandated joint-audit requirements in 2016 in Kuwait. The study is differentiated from prior analysis by focusing on an emerging economy setting, and by considering a more expansive set of joint-audit pairings, solo-audit types and switching options.

Abolition of mandated joint-audit requirements prompted a majority of Boursa Kuwait listed firms to switch to solo-audits. Analysis indicates that switch does not significantly decrease audit quality. Also, audit quality changes are not dependent on the specific joint-audit pairing/solo-audit type switch.

Analysis is based on a single national setting comprising a small set of firms. Nonetheless, results imply the impact of joint-/solo-audit switching following abolition of mandated requirements is more universal with generalizability to different economic settings.

Results indicate that following elimination of mandated joint-audit requirements, firms have a propensity to favor solo-audits. Irrespective of the joint-audit pairing and solo-audit type, findings show a joint-/solo-audit switch does not compromise audit quality.

Analysis is the first to investigate the impact of joint/solo-audit switches on audit quality in an emerging economy with tests considering more joint-audit pairings than assessed previously.

Audit quality studies document that accruals decrease when the audit firm is large, or the audit firm is an industry specialist, or the audit‐client tenure is long. The purpose of this paper is to posit that incentives related to highly‐valued equity mitigate these results, as managers use income increasing accruals to augment earnings.

To test this assertion, the authors regress discretionary accruals on: controls, a highly valued equity indicator variable equal to 1 if the client's lagged price‐to‐earnings ratio is in the highest P/E quintile, indicator variables equal to 1 for alternative measures of audit quality, and interaction terms between the highly valued equity indicator variable and audit quality indicator variables.

Results of tests show positive and statistically significant coefficients for each of the highly‐valued equity‐audit quality interaction terms, suggesting that when a firm is highly valued the accruals' decreasing effect of high quality auditors is reduced.

Beginning with Jensen's article regarding the agency costs of overvalued equity, a stream of research examining factors associated with highly priced firms has developed. The paper extends these findings, as well as the considerable body of audit quality studies, by examining the ability of a high quality auditor to attenuate this result.