The Voluntary Choice of an Audit of Any Level of Quality

Abstract

We examine auditor choice in a modern voluntary audit setting, where entities are free to choose an audit of any level of quality. We test the association of incentives for auditing with mechanisms that indicate audit quality to users, namely auditor reputation, auditor size, auditor professional institute membership and auditor education. Logistic regression tests of each successive choice of a higher quality auditor show that greater entity size is associated with the choice of a higher level of audit quality. In addition, higher debt is associated with the choice of a professionally qualified auditor; higher salaries are associated with the choice of an auditor, with the choice of a qualified auditor and with the choice of a large audit firm. Receipts of higher voluntary contributions by donations and grants are negatively associated with the choice of a Big 5 firm. These results suggest that demand for a higher quality audit is related to incentives for contracting, signaling and management control but not with demand for insurance.

Keywords: Voluntary auditing, Audit quality

JEL Classification: M41, M49, G32