Auditor Multinational Expertise and Audit Quality

Posted: 5 Sep 2017

See all articles by Joshua L. Gunn

Joshua L. Gunn

University of Pittsburgh - Katz Graduate School of Business

Paul N. Michas

University of Arizona - Eller College of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2017

Abstract

Over the past several decades, the scope of public companies’ operations has become increasingly global. This has led to concern over the ability of audit firms to conduct high-quality audits across geographically dispersed foreign operations. We contribute to the growing body of research in this area by investigating the association between audit quality and local audit offices’ expertise in conducting multinational audit engagements. We use two complementary measures to proxy for an audit office’s multinational expertise: (i) local multinational market leadership, and (ii) country-specific experience. Using a sample of multinational client firms headquartered in the United States, we consistently find that audit quality is stronger when the auditor possesses expertise conducting global group audits, possesses particular expertise in the country where a client has a significant subsidiary, or possesses both types of expertise on an engagement. Several sample partitions reinforce our main results. The results are robust to propensity score matching as well as a placebo test using clients of the audit office that generate no foreign sales. Our evidence suggests that the challenge of conducting multinational audits is more easily met by auditors with expertise on these types of engagements.

Keywords: audit quality, group audits, multinational audits, auditor expertise

JEL Classification: M40, M42, F23

Suggested Citation

Gunn, Joshua L. and Michas, Paul N., Auditor Multinational Expertise and Audit Quality (August 31, 2017). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3030177

Joshua L. Gunn

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Paul N. Michas (Contact Author)

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

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