Predicting Audit Failure: Evidence From Auditing Enforcement Releases

Forthcoming in Spanish Journal of Finance and Accounting

50 Pages Posted: 7 Oct 2018

Date Written: February 23, 2016


This study aims to identify the main determinants of audit failure and contribute to the current debate raised by recent European Union regulation on auditor’s tenure and economic policies to prevent impairment of auditor’s independence. We approach audit failure through auditing enforcement releases triggered by the investigations conducted by the Spanish public oversight board. The sample of sanctioned individual auditors and audit firms covers the period 2002 to 2013. Our results reveal that audit failure likelihood increases when the probability of financial distress is higher, the auditor is permissive of upward earnings management, and the audit report is signed by an individual auditor. The results reveal a positive association between auditor tenure and audit failure only for individual auditors. The relative economic weight of the auditor–client is also positively associated with audit failure, plausibly because audit firms are more concerned with reputation loss tied to big scandals than succumbing to economic pressure from their clients.

Keywords: Public Oversight Board, Audit Quality, Sanctions, Individual Auditors, Audit Failure, Auditing Enforcement Releases

JEL Classification: C13, C53, H83, M42, M48

Suggested Citation

de Fuentes Barbera, Cristina and Porcuna Enguix, Rubén, Predicting Audit Failure: Evidence From Auditing Enforcement Releases (February 23, 2016). Forthcoming in Spanish Journal of Finance and Accounting, Available at SSRN:

Cristina De Fuentes Barbera (Contact Author)

University of Valencia ( email )

E-46022 Valencia, Valencia E-46022

Rubén Porcuna Enguix

University of Valencia ( email )

Edificio Departamental Oriental
Avda. dels Tarongers, s/n
Valencia E-46022

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