How Do Audit Firm Quality Indicators Relate to Engagement-Level Audit Quality?

51 Pages Posted: 21 Sep 2012

See all articles by Jae Eun Lee

Jae Eun Lee

Hongik University - School of Business

Gil S. Bae

Korea University - Department of Accounting

Date Written: September 20, 2012

Abstract

This study investigates how audit firm quality indicators relate to audit quality at the engagement-level. Specifically, eight input and two output audit firm quality measures are constructed and related to a broad range of engagement-level input and output audit quality measures. We find that audit firm quality generally relates positively to audit hours and audit fees (engagement-level input audit quality measures), and negatively to discretionary accruals and error corrections (engagement-level output audit quality measures); however, the relationship is stronger in the former. Our findings provide support to the position of regulators in that audit firm quality indicators will be useful information to client firms and investors when evaluating audit quality.

Keywords: Audit quality indicators, Audit firm characteristics, Transparency report, Human capital leverage, Engagement-level audit quality

JEL Classification: M4, M42

Suggested Citation

Lee, Jae Eun and Bae, Gil Soo, How Do Audit Firm Quality Indicators Relate to Engagement-Level Audit Quality? (September 20, 2012). Available at SSRN: https://ssrn.com/abstract=2149953 or http://dx.doi.org/10.2139/ssrn.2149953

Jae Eun Lee

Hongik University - School of Business ( email )

72-1 Sangsu-Dong, Mapo-Gu
Seoul, 121-791
Korea, Republic of (South Korea)

Gil Soo Bae (Contact Author)

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
336
Abstract Views
1,764
rank
123,867
PlumX Metrics