Managing Quality Control Systems: How Audit Firms Experience and Navigate Conflicting Institutional Demands

Abstract

Quality control (QC) systems are a critical and rapidly evolving determinant of audit quality, but little is understood about how firms manage them. To improve our understanding, we interview 27 QC system leaders to examine QC changes firms are currently making and ideally would make as well as challenges firms face in managing QC systems and how they address these challenges. We find that many challenges—including obtaining buy-in, evaluating costs and benefits, and advancing proactive over reactive changes—are caused by conflicting demands arising internally. Consistent with institutional theory, our data reveal that firms respond to conflicting demands by seeking partial conformity (e.g., negotiating among stakeholders) or by altering the framing of the demands (e.g., using scientific logic to legitimize an issue). Our study sheds light on how firms manage QC systems and informs practitioners, regulators, and academics of the forces that shape the evolution of QC systems.

Keywords: quality control, auditing standards, audit quality, institutional theory, conflicting demands, response strategies