The Importance of Audit Profession Development in Emerging Market Countries

54 Pages Posted: 19 Dec 2010 Last revised: 29 Jul 2011

See all articles by Paul N. Michas

Paul N. Michas

University of Arizona - Eller College of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 2010

Abstract

This study investigates the country-level development of the audit profession in emerging market countries and whether this development is associated with audit quality and auditor choice. I find that audit quality is higher for client companies located in countries with a more developed audit profession, after controlling for rule of law and investor protection. Specifically, Big 4 client companies’ total and abnormal accruals are both lower, and earnings are more conservative in countries with stronger Audit Profession Development (APD). However, these results hold only for companies audited by a Big 4 auditor. Results also indicate that stronger audit profession development is associated with a greater likelihood a client company hires a Big 4 auditor. My findings contribute to the literature that explores differences in audit quality and determinants of auditor choice, the literature that explores cross-country differences in audit professions, and research on the characteristics and effectiveness of audit institutions in emerging market economies.

Keywords: Audit Profession, Auditor Choice, Audit Quality, Developing Countries, Emerging Markets, International Accounting

Suggested Citation

Michas, Paul N., The Importance of Audit Profession Development in Emerging Market Countries (December 18, 2010). Available at SSRN: https://ssrn.com/abstract=1728149 or http://dx.doi.org/10.2139/ssrn.1728149

Paul N. Michas (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

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