“The Effect of Office-Level Factors on Audit Quality” by Professor Patricia C. O’Brien
ACCOUNTING SEMINAR
Speaker:
Professor Patricia C. O'Brien
School of Accounting and Finance
University of Waterloo
Abstract:
We aim to provide new evidence on factors that affect audit quality, among U.S. clients of Big 4 audit offices during 2000-2015. A key contribution of this study is our method of controlling for clients’ misreporting risk, which helps us to separate client risk from auditor traits and behaviors associated with audit failure. We create, for each audit office, a “synthetic office” of similarly risky clients of different auditors, and use the synthetic office as a benchmark. We then use this method to study how the auditor’s willingness to report unfavorable information, via additional language in the audit opinion, affects restatement rates and rates of receiving SEC comment letters. Our validity tests show that the synthetic office is an effective control. Our results do not, however, support the conjecture that audit offices exhibiting greater willingness to voice concerns provide higher quality audits.
