Effects of Joint Audits on Audit Quality and Audit Costs: A Game-Theoretical Explanation for Contradictory Empirical Results

68 Pages Posted: 1 Apr 2021 Last revised: 31 May 2022

See all articles by Henrike Biehl

Henrike Biehl

University of Konstanz - Department of Economics

Christopher Bleibtreu

BI Norwegian Business School

Ulrike Stefani

University of Konstanz - Department of Economics

Date Written: March 30, 2021

Abstract

Using a model of a joint audit (JA) with a proportionate liability rule, we analyze how the similarity of the two auditors in their client fit affects their free riding incentives and the synergy effect realized. We find that audit quality in a JA is high (low) and audit costs are low (high) if both auditors fit the client’s characteristics similarly well (if the auditors are dissimilar and one auditor therefore free-rides). A JA can lead to higher (lower) audit quality and lower (higher) audit costs than a single audit (SA) if the synergy effect is sufficiently high (low). Imbalances in the allocation of the audit work can increase (decrease) audit quality and decrease (increase) costs if the auditors’ similarity is low (high). A shared audit in case the auditors’ similarity is relatively low can lead to lower (higher) audit quality and higher (lower) audit costs than an SA (JA).

Keywords: audit regulation, joint audit, shared audit, audit quality, audit costs, coordination, free riding, synergy

JEL Classification: M42, M48

Suggested Citation

Biehl, Henrike and Bleibtreu, Christopher and Stefani, Ulrike, Effects of Joint Audits on Audit Quality and Audit Costs: A Game-Theoretical Explanation for Contradictory Empirical Results (March 30, 2021). Available at SSRN: https://ssrn.com/abstract=3816011 or http://dx.doi.org/10.2139/ssrn.3816011

Henrike Biehl

University of Konstanz - Department of Economics ( email )

Konstanz, D-78457
Germany

Christopher Bleibtreu (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Ulrike Stefani

University of Konstanz - Department of Economics ( email )

Konstanz, D-78457
Germany

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