Do Joint Audits Improve Audit Quality? Evidence from Voluntary Joint Audits

54 Pages Posted: 13 Mar 2012  

Elina Elisabet Haapamäki

University of Vaasa - Department of Accounting and Finance

Tuukka Järvinen

University of Vaasa - Department of Accounting and Finance

Lasse Niemi

Aalto University

Mikko P. Zerni

University of Vaasa - Department of Accounting and Finance

Date Written: March 6, 2012

Abstract

This study examines whether the decision to voluntarily (i.e., without a statutory obligation) employ two audit firms to conduct a joint audit is related to audit quality. We use separate samples and empirical designs for public and privately held companies in Sweden, where a sufficient number of companies have a joint audit on a voluntary basis. Our empirical findings suggest that companies opting to employ joint audits have a higher degree of earnings conservatism, lower abnormal accruals, better credit ratings and lower perceived risk of becoming insolvent within the next year than other firms. These findings are robust to the use of a propensity score matching technique to control for the differences in client characteristics between firms that employ joint audits and those that use single Big 4 auditors (i.e., auditor self-selection). We also find evidence that the choice of a joint audit is associated with substantial increases in the fees paid by the client firm, suggesting a higher perceived level of quality. Collectively, our analyses support the view that voluntary joint audits are positively associated with audit quality in a relatively low litigious setting both for public and private firms.

Keywords: auditing, audit fees, auditor independence, audit quality, corporate governance, joint audits

JEL Classification: M42

Suggested Citation

Haapamäki, Elina Elisabet and Järvinen, Tuukka and Niemi, Lasse and Zerni, Mikko P., Do Joint Audits Improve Audit Quality? Evidence from Voluntary Joint Audits (March 6, 2012). European Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2016847

Elina Elisabet Haapamäki

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland

Tuukka Järvinen

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

Lasse Niemi

Aalto University ( email )

PO Box 21220
Aalto, FI-00076
Finland

HOME PAGE: http://https://people.aalto.fi/index.html#lasse_niemi

Mikko P. Zerni (Contact Author)

University of Vaasa - Department of Accounting and Finance ( email )

P.O.Box 700
Vaasa, FI-65101
Finland

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