Luận Văn Differences In Audit Quality Among Audit Firms An Examination Using Bid-Ask Spreads

Differences in audit quality among audit firms: An examination using bid-ask spreads



A large prior literature has argued auditor size is positively associated with audit quality. These studies have used a number of different measures to proxy for audit quality. This dissertation examines differences in audit quality across audit firms, using clients' bid-ask spreads as the measure of audit quality. The bid-ask spread, defined as the difference between the ask price and the bid price for a company's stock, has been shown to be positively associated with the extent of information asymmetry about the firm (Stoll 1989). Because the role of an audit is the reduction of information risk (Boynton and Kell 1996, 36) and therefore information asymmetry, it is argued audit quality is negatively associated with a firm's bid-ask spread. This dissertation examines differences in audit quality for a three-tier classification of audit firms; Big 6, National, and other audit firms. Differences in audit quality among individual audit firms are also examined. The results of the tests provide evidence the Big 6 and National firms provide a higher quality audit than non-National audit firms, but there is no discernible difference in the level of audit quality between the Big 6 and National firms. Weak evidence is also provided the level of audit quality is not homogenous within the Big 6 as had been assumed by previous research. In addition to examining brand name and inter-firm differences in audit quality, intra-firm differences in audit quality are also examined. Wallman (1996) points out that when assessing issues relating to audit quality, the focus should be on the office or other unit of the firm making the audit decisions with respect to an individual audit client. Partners within a firm may be subject to different financial incentives, which can compromise their independence. These financial incentives may be dependent upon the size of the partner's resident office when the audit firm's partner compensation plan is dependent upon the local office financial results. This dissertation finds no evidence office size impacts the level of audit quality within a Big 6 firm These results may be partially explained by fundamental differences in the size and number of clients for large and small offices of the firms.
[TABLE="class: citation"]
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[TH]Format:[/TH]
[TD]Dissertation[/TD]
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[TH]Author(s):[/TH]
[TD]Schauer, Paul Christian[/TD]
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[TR]
[TH]Published:[/TH]
[TD]1999[/TD]
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[TH]Language:[/TH]
[TD]English[/TD]
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