The Effect of National Inspection Regimes on Audit Quality

76 Pages Posted: 10 Oct 2017

See all articles by Elizabeth Carson

Elizabeth Carson

University of New South Wales

Roger Simnett

UNSW Australia Business School, School of Accounting

Ulrike Thuerheimer

Maastricht University

Ann Vanstraelen

Maastricht Accounting and Auditing Research and Education Center (MARC); Maastricht University

Date Written: September 27, 2017

Abstract

One of the key reforms aimed at improving audit quality has been the introduction of public oversight over the auditing profession by national public oversight bodies (POBs). The foundation of their strategy is inspections of audit firms. However, little is known about the impact of inspections on audit quality from an international perspective. We examine the effect of audit firm inspections by POBs on audit quality, and explore the association of inspection characteristics and audit quality. Applying a difference-in-difference design exploiting the commencement of inspections at different points in time for different countries to a large international sample over the period 2003 to 2012, we find that audit quality increases after inspections commence, and that this effect is stronger for Big 4 auditors. Further, the effect of inspections on audit quality is found to vary with inspection characteristics. Overall, our study contributes to our knowledge of the impact of inspections on audit quality.

Keywords: Public Oversight; Audit Quality; Inspections

JEL Classification: M42, M48

Suggested Citation

Carson, Elizabeth and Simnett, Roger and Thuerheimer, Ulrike and Vanstraelen, Ann, The Effect of National Inspection Regimes on Audit Quality (September 27, 2017). Available at SSRN: https://ssrn.com/abstract=3049828 or http://dx.doi.org/10.2139/ssrn.3049828

Elizabeth Carson

University of New South Wales ( email )

Sydney, NSW 2052
Australia
+612 9385 5822 (Phone)
+612 9385 5925 (Fax)

Roger Simnett

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5825 (Phone)
+61 2 9385 5925 (Fax)

Ulrike Thuerheimer

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Ann Vanstraelen (Contact Author)

Maastricht Accounting and Auditing Research and Education Center (MARC) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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