The Economics of Audit Production: What Matters for Audit Quality? An Empirical Analysis of the Role of Mid-level Managers within the Audit Firm

57 Pages Posted: 28 Dec 2018 Last revised: 29 Jan 2021

See all articles by Daniel Aobdia

Daniel Aobdia

Pennsylvania State University - Smeal College of Business

Preeti Choudhary

University of Arizona, Eller College of Management

Noah Newberger

Public Company Accounting Oversight Board; Oeste Division of Research & Statistics

Date Written: January 28, 2021

Abstract

Practitioners and academics have increasingly focused on identifying audit production factors associated with more effective audits. Using proprietary data, we analyze two audit team production characteristics, client-specific expertise and year-round auditing, and find that both are associated with more effective audits. We separately analyze whether the influence of these characteristics varies by audit team member to better understand who drives audit quality. In contrast to the literature which has largely focused on lead audit partners, we find that other experienced team members characteristics (i.e, managers, senior managers, and non-lead partners) explain audit effectiveness results, whereas lead audit partner characteristics do not. We further find a positive effect of these characteristics on audit fees, after controlling for the quality of the audit, consistent with audits exhibiting credence good attributes. Overall, our results highlight the importance of client specific expertise and year-round auditing, especially by other experienced team members.

Keywords: audit production; client expertise; year-round auditing; human capital; audit partners; audit managers, senior managers, and directors; audit quality; audit fees; credence goods

JEL Classification: D20; D22; J24; L23; M11; M4; M42; M48

Suggested Citation

Aobdia, Daniel and Choudhary, Preeti and Newberger, Noah, The Economics of Audit Production: What Matters for Audit Quality? An Empirical Analysis of the Role of Mid-level Managers within the Audit Firm (January 28, 2021). Available at SSRN: https://ssrn.com/abstract=3300277 or http://dx.doi.org/10.2139/ssrn.3300277

Daniel Aobdia (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

Preeti Choudhary

University of Arizona, Eller College of Management ( email )

School of Accountancy
Tucson, AZ 85721
United States

Noah Newberger

Public Company Accounting Oversight Board ( email )

1666 Kase Street
Washington, DC 20006
United States

Oeste Division of Research & Statistics ( email )

8 The Green,
Suite #8342
Dover, DE 19901
United States

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