Demand for and Assessment of Audit Quality in Private Companies

34 Pages Posted: 17 Sep 2018

See all articles by Adam Esplin

Adam Esplin

University of Texas at El Paso

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: September 2018

Abstract

Financial statement audits are mandated in most countries, thus making it difficult to distinguish between auditing driven by private incentives versus that driven by regulation. Who would ask for an audit, and how would its quality be assessed in the absence of regulation? Many private companies in Canada get their financial statements audited even though the law does not require it. In this field study, we conduct interviews to discover reasons for demanding an audit, and criteria used to assess their quality. Our study reveals that both internal stakeholders (management, boards, and employees) as well as external stakeholders (customers, banks, and private equity firms) request audits. Users evaluate audit quality based on a variety of criteria such as the auditor's accounting expertise, the absence of errors, the fees involved, risk assessments offered, allocation of effort, internal control, and general business advice. Implications for audit regulations are discussed.

Keywords: Audit quality, Regulation of audits, Sources of demand for audits of private firms, Field study

Suggested Citation

Esplin, Adam and Jamal, Karim and Sunder, Shyam, Demand for and Assessment of Audit Quality in Private Companies (September 2018). Abacus, Vol. 54, Issue 3, pp. 319-352, 2018. Available at SSRN: https://ssrn.com/abstract=3249695 or http://dx.doi.org/10.1111/abac.12138

Adam Esplin (Contact Author)

University of Texas at El Paso

500 W University Ave
El Paso, TX 79902
United States

Karim Jamal

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-5829 (Phone)
780-492-3325 (Fax)

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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