A Subsidiary and Parent Level Analysis of Foreign Component Auditor Usage and Audit Quality

59 Pages Posted: 24 Feb 2020

See all articles by William Docimo

William Docimo

University of Pittsburgh - Katz Graduate School of Business

Joshua L. Gunn

University of Pittsburgh - Katz Graduate School of Business

Chan Li

University of Kansas

Paul N. Michas

University of Arizona - Eller College of Management

Date Written: January 23, 2020

Abstract

We contribute to the emerging literature on component auditor usage by building a dataset at the level of individual foreign subsidiaries of U.S. multinational audit clients. In contrast to extant research that studies component auditor usage only at the parent level, we measure audit quality at the level of individual foreign subsidiaries and find evidence of a positive association between individual component auditor usage and subsidiary-level audit quality. This result is robust to a variety of different model specifications, matching techniques, and proxies for audit quality. We find mixed evidence that aggregate component auditor usage is associated with audit quality at the parent level. Our results underscore the importance of using disaggregated, subsidiary-level data to study component auditors, and why inferences made from aggregated, parent-level data can be misleading. The results have implications for the PCAOB’s current standard-setting agenda.

Suggested Citation

Docimo, William and Gunn, Joshua L. and Li, Chan and Michas, Paul N., A Subsidiary and Parent Level Analysis of Foreign Component Auditor Usage and Audit Quality (January 23, 2020). Available at SSRN: https://ssrn.com/abstract=3526388 or http://dx.doi.org/10.2139/ssrn.3526388

William Docimo

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Joshua L. Gunn (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Chan Li

University of Kansas ( email )

Capitol Federal Hall
Lawrence, KS 66045
United States
7857661277 (Phone)
66045 (Fax)

Paul N. Michas

University of Arizona - Eller College of Management ( email )

Tucson, AZ 85721
United States

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