Abstract

http://ssrn.com/abstract=1317744
 
 

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Citations (6)



 


 



A Modified Audit Production Framework: Evaluating the Relative Efficiency of Audit Engagements


W. Robert Knechel


University of Florida - Fisher School of Accounting

Paul Rouse


University of Auckland - Faculty of Business & Economics

Caren Schelleman


Maastricht University - Department of Accounting & Information Management, MARC (Maastricht Accounting, Auditing & Information Management Research Center)

December 2, 2008

Accounting Review, Forthcoming

Abstract:     
We develop a model of audit production based on Data Envelopment Analysis (DEA) using labor cost as input and hours spent on evidence-gathering activities that determine the level of assurance as output. Client characteristics are considered exogenous factors that affect audit production as a whole. We apply the model to a sample of U.S.-based engagements from an international accounting firm. Results indicate that a constrained DEA model using variable returns to scale is appropriate for modeling audit production. We find that audits are more efficient for clients that are larger, have a December year-end, and are highly automated. Audits are less efficient when the auditor relies on internal control, tax services are provided, and the client has subsidiaries. We also find that a well-specified regression-based production model can control for factors that influence auditor efficiency. Finally, we find that inefficiencies are impounded in fees for some industries and firm offices.

Number of Pages in PDF File: 55

Keywords: audit production, Data Envelopment Analysis, efficiency

JEL Classification: M49, H25, D40

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Date posted: December 18, 2008  

Suggested Citation

Knechel, W. Robert and Rouse, Paul and Schelleman, Caren, A Modified Audit Production Framework: Evaluating the Relative Efficiency of Audit Engagements (December 2, 2008). Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1317744

Contact Information

W. Robert Knechel (Contact Author)
University of Florida - Fisher School of Accounting ( email )
Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
Paul Rouse
University of Auckland - Faculty of Business & Economics ( email )
Private Bag 92019
Auckland
New Zealand
+64 9 373 7599 (Phone)
+64 9 373 7406 (Fax)
Caren Schelleman
Maastricht University - Department of Accounting & Information Management, MARC (Maastricht Accounting, Auditing & Information Management Research Center) ( email )
PO Box 616
Maastricht, 6200 MD
Netherlands
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