The Importance of Audit Profession Development in Emerging Market Countries

Posted: 25 Oct 2011 Last revised: 11 Sep 2013

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: September 1, 2011

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 APD is associated with a greater likelihood that 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

JEL Classification: M00, M4

Suggested Citation

Michas, Paul N., The Importance of Audit Profession Development in Emerging Market Countries (September 1, 2011). Accounting Review (2011) Vol. 86 (5): 1731-1764. Available at SSRN: https://ssrn.com/abstract=1941946

Paul N. Michas (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

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