Are Audit Fees and Audit Quality Affected When Lead Auditors Accept Responsibility for Work Performed by Other Auditors?
58 Pages Posted: 26 Mar 2018 Last revised: 9 Mar 2019
Date Written: March 6, 2019
Lead auditors frequently rely on work performed by Other auditors, especially when auditing clients with operations in multiple countries. The PCAOB has expressed concern that the quality of such group audits may 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 from the fiscal years of 2009 to 2017. 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 audits of no higher quality. 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.
Keywords: group audits, lead auditor, divided responsibility, audit fee, audit quality
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