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

The Accounting Review, Forthcoming

62 Pages Posted: 28 Dec 2018 Last revised: 29 Aug 2023

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: August 28, 2023

Abstract

As audits of public companies are labor intensive, require a variety of team members and involve year-round work, practitioners and academics have increasingly focused on identifying audit production factors that drive audit quality. Using proprietary data, we analyze the cost-benefit tradeoffs of two audit production characteristics, client expertise and the relative amount of auditing done during the early phases of the audit and find that both are associated with more effective audits and higher fees. We analyze whether the influence of these characteristics varies across audit team members. We find that middle manager production characteristics explain audit effectiveness and higher fees, and relatively more so than those of lead/review partners. These results extend the literature and practitioner discussions about drivers of audit quality by highlighting the importance of middle management which, to our knowledge has largely been overlooked by the archival audit literature and regulatory guidance on audit quality indicators.

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 (August 28, 2023). The Accounting Review, Forthcoming, 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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