Demand for and Assessment of Audit Quality in Private Companies

49 Pages Posted: 10 Aug 2014 Last revised: 9 May 2018

See all articles by Adam M. Esplin

Adam M. Esplin

University of Texas at El Paso

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: April 27, 2018

Abstract

Audits of financial statements are mandated in most countries thus making it difficult to disentangle features of audit driven by private incentives versus regulation. Who would demand an audit, and how would they assess audit quality in the absence of regulation? Many private companies in Canada get their financial statements audited even though the law does not require it. In this field study, we conduct interviews to learn about various sources of private demand for audits, and criteria used to assess their quality. Our study reveals several sources of private audit demand from both internal stakeholders (management, boards, and employees) as well as external stakeholders (customers, banks and private equity firms). Users assess audit quality based on a variety of criteria such as the auditor’s accounting expertise, absence of errors, fee, risk assessments they make, allocation of their effort, and internal control and general business advice. Implications for audit regulation are discussed.

Keywords: Audit quality, regulation of audits, sources of demand for audits private firms, field study

JEL Classification: M42

Suggested Citation

Esplin, Adam M. and Jamal, Karim and Sunder, Shyam, Demand for and Assessment of Audit Quality in Private Companies (April 27, 2018). Available at SSRN: https://ssrn.com/abstract=2477962 or http://dx.doi.org/10.2139/ssrn.2477962

Adam M. Esplin (Contact Author)

University of Texas at El Paso ( email )

500 W University Ave
El Paso, TX 79902
United States

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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