Does an Audit Office’s Engagement Quality Review Impact Audit Quality? Evidence from Audit Report Errors

47 Pages Posted: 23 Oct 2020 Last revised: 26 Dec 2023

See all articles by Lawrence Abbott

Lawrence Abbott

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting

Blair B. Marquardt

University of North Texas - Department of Accounting

Stephanie Merrell

Louisiana State University, Baton Rouge - Department of Accounting

Date Written: December 21, 2023

Abstract

Although practitioner literature and auditing standards assert a link between an auditor’s engagement quality review (EQR) and audit quality, prior archival researchers have struggled to support of this claim. We identify an error in the audit report as an observable failure of the EQR since EQR partners are required to read the audit report. We expect that audit report errors to reveal broader EQR problems and lower audit quality for the affected office. Consistent with an office-level effect, we find that clients of Big Four offices committing audit report errors display greater abnormal accruals than do clients of non-offending offices. Our research is among the first to archivally demonstrate that audit firms’ EQR meaningfully impacts outcome-based audit quality.

Keywords: Audit Quality, Engagement Quality Review, Audit Report

JEL Classification: M42, M48

Suggested Citation

Abbott, Lawrence and Buslepp, William L. and Marquardt, Blair and Merrell, Stephanie, Does an Audit Office’s Engagement Quality Review Impact Audit Quality? Evidence from Audit Report Errors (December 21, 2023). Available at SSRN: https://ssrn.com/abstract=3704040 or http://dx.doi.org/10.2139/ssrn.3704040

Lawrence Abbott

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business ( email )

P.O. Box 742
3202 N. Maryland Ave.
Milwaukee, WI 53201-0742
United States

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting ( email )

E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States

Blair Marquardt (Contact Author)

University of North Texas - Department of Accounting ( email )

G. Brint Ryan College of Business
1155 Union Circle #305219
Denton, TX 76203-5017
United States

Stephanie Merrell

Louisiana State University, Baton Rouge - Department of Accounting ( email )

E.J. Ourso College of Business Administration
2800 Business Education Complex
Baton Rouge, LA 70803
United States

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