Are Audit Fees and Audit Quality Affected When Lead Auditors Accept Responsibility for Work Performed by Other Auditors?

55 Pages Posted: 26 Mar 2018 Last revised: 23 Sep 2018

See all articles by Juan Mao

Juan Mao

University of Texas at San Antonio - Department of Accounting

Michael Ettredge

University of Kansas - Accounting and Information Systems Area

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration

Date Written: March 1, 2018

Abstract

Lead auditors frequently rely on work performed by other auditors, especially when auditing clients that have operations in multiple countries. The PCAOB has expressed concern that the quality of such group audits might differ depending on whether the lead auditor accepts or declines responsibility for work done by other auditors. The PCAOB also has been concerned with the venue through which lead auditors and other auditors disclose their participation in group audits, including disclosure of whether the lead auditors accept or decline responsibility. To investigate these issues, we employ a sample consisting entirely of group audit engagements. We identify lead auditors taking responsibility from PCAOB Form 2, filed by other auditors of U.S. registrants. We identify lead auditors not accepting responsibility from audit report disclosures. We find that lead auditors accepting responsibility charge higher audit fees but provide the same or lower quality audits. These results are robust to various additional analyses. Our research contributes to the ongoing debate over how the participation of other auditors affects audit quality and how other auditors’ participation should be disclosed.

Keywords: group audits, lead auditor, divided responsibility, audit fee, audit quality

Suggested Citation

Mao, Juan and Ettredge, Michael L. and Stone, Mary S., Are Audit Fees and Audit Quality Affected When Lead Auditors Accept Responsibility for Work Performed by Other Auditors? (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=3149245 or http://dx.doi.org/10.2139/ssrn.3149245

Juan Mao (Contact Author)

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8305 (Phone)

Michael L. Ettredge

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Box 870223
School of Accountancy 314 Alston Hall
Tuscaloosa, AL 35487-0223
United States
205-348-2915 (Phone)
205-348-8453 (Fax)

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