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We develop a model to evaluate the costs and benefits of disclosing information about audit quality. Specifically, we examine whether audit quality disclosure affects auditors' effort and investors' investment efficiency. In our setting, an auditor exerts unobservable effort to influence audit quality and is motivated by liability in the event of audit failure. The usefulness of audited financial reports for investors depends on both the quality of the underlying financial reporting (e.g., as embodied by GAAP) and the quality of auditors' reports (i.e., the likelihood with which audit evidence uncovers managerial misreporting). We show that audit quality disclosure increases auditors' effort incentives if and only if the underlying financial reporting quality is relatively weak. We also show that such disclosure can actually reduce investment efficiency. Our analyses contribute to the debate about policies aimed at improving audit transparency.

Audit committees are appointed by the board of directors of corporations to oversee the financial reporting process, monitor financial control processes, hire and assess independent auditors, and communicate findings with management and auditors. We propose two new measures of audit oversight quality. The first measure is purely subjective, in that it scores audit committees on a scale based on their ability to fulfill one or more of their responsibilities, as mentioned in annual reports, Form 10-K and DEF 13A. The second measure concerns audit committee activity, as it measures the number of times the term ‘audit committee’ is mentioned in these documents. Both measures were obtained for U.S. pharmaceutical companies and energy companies from 2010 to 2022. The audit oversight quality measures were regressed in regard to profitability (measured by return on assets and return on equity), debt capacity (measured by equity multiplier), and firm value (measured by Tobin’s q and economic value added). Audit oversight quality, using both measures, reduces the return on equity. Audit oversight quality, using both measures, had a disciplining effect on debt. Increases in the oversight of increasing debt discourage the propensity to increase borrowing using collateral (debt capacity), and reduce investor returns through investment in debt-financed projects (return on equity). Audit oversight quality, using both measures, exhibited a size effect on the firm’s value, in that an increase in the firm size with high audit oversight quality increases the firm’s value. However, it is possible that only the first measure of audit oversight quality significantly increased the firm’s value, as only the first measure exhibited robustness to the endogeneity effect of size.

Using a sample of Chinese to-be-listed firms during the period of 2006-2012, this study examines the influence of CEO-auditor dialect sharing (CADS) on pre-IPO audit quality and further investigates the moderating effects of auditor reputation and audit firm industry specialization. On the basis of information in personal identification cards, this study hand-collects data about CADS, and then provides strong and consistent evidence to show that CADS is significantly positively related with discretionary accruals (the inverse proxy for audit quality), suggesting that CADS leads to the collusion between the CEO and the signing auditors, elicits pre-IPO earnings management, and eventually impairs pre-IPO audit quality. Moreover, both auditor reputation and audit firm industry specialization attenuate the positive effect of CADS on discretionary accruals. Furthermore, sensitivity tests suggest that above findings are robust to different measures of CADS and discretionary accruals, and above conclusions still stand after controlling for the endogeneity. Lastly, the findings using the post-IPO sample further validate the negative association between CADS and pre-IPO audit quality.

PurposeThe purpose of this study is to establish the relationship between corporate governance attributes (board expertise, board independence and board role performance), internal audit quality and financial reporting quality using evidence from Uganda's financial institutions.Design/methodology/approachThis study research design is cross sectional and correlational. The study used a questionnaire survey of Chief Finance Officers, Senior Accountants and Internal audit managers of financial institutions in Uganda. Data were analyzed with the help of Statistical Package for Social Sciences.FindingsResults indicate that board expertise and board role performance are significantly associated with financial reporting quality. Also, internal audit quality is significantly associated with financial reporting quality. Board independence is not a significant predictor of financial reporting quality.Originality/valueThis paper provides insights of what matters for financial reporting quality in Uganda's financial reporting quality. It uses the qualitative characteristics of financial statements to measure financial reporting quality. This paper focuses mainly on the conceptual framework developed by the International Accounting Standards Board.

PurposeThis study aims to understand the behavior of internal auditors towards quality and analyze if some organizational and individual factors influence internal audit quality.Design/methodology/approachThe sample is constituted by Portuguese internal auditors, and the methodology includes the use of partial least squares – structuring equation model (PLS-SEM) to test the hypothesis under study.FindingsThe results show that there is a negative relationship between reduced audit quality practices (RAQP) and organizational commitment and independence. The results found that time pressure positively affect RAQP. There is no evidence that perceived organizational support (POS) and risk profile are determinants of RAQP.Originality/valueThis work contributes by extending the literature about the determinants of internal audit quality, but also to the practice by understanding the factors that influence the behavior of internal auditors and by making recommendations that allow an improvement of the quality of internal auditing.

PurposeUsing attribution theory, this study examined the effects of situational factors [time budget pressure (TBP), organisational ethical culture (OEC) and quality control procedures (QCPs)] and dispositional factors [auditor professional commitment (APC) and internal locus of control (ILOC)] on audit quality threatening behaviour (AQTB). In addition, it observed the moderating role of religiosity in the relationship between situational and dispositional factors and AQTB.Design/methodology/approachA total of 189 external auditors responded to the survey questionnaire. This study employed structural equation modelling via SmartPLS to analyse the proposed model.FindingsThe results documented that the OEC and QCPs situational factors were negatively related to the incidence of AQTB, whilst TBP was positively linked to the incidence of AQTB. Dispositional factors APC and ILOC were negatively connected to AQTB. Furthermore, the findings recorded the moderating effect of religiosity on most of the situational and dispositional factors related to AQTB.Practical implicationsRegulators and accounting firms' efforts to promote high audit quality (AQ) may consider the theological/religious lens and reinforce ethical culture and quality control to reduce AQTB.Originality/valueThe findings provide further insights into situational and dispositional factors that may cause or impede the incidence of AQTB in auditing practices, as well as the moderating role of religiosity in curbing AQTB.

Purpose Drawing on the International Auditing and Assurance Standards Board (IAASB) audit quality framework and related knowledge management literature, this study aims to examine the influence of tacit knowledge sharing on audit quality inputs within small audit firms’ realm. It also investigated auditors’ social capital antecedent effect via tacit knowledge sharing on audit quality inputs. Design/methodology/approach An integrated model was developed to depict the study constructs’ relationships. The model was then tested using the partial least squares structural equation modelling based on data collected from auditors belonging to small audit firms in Jordan. Findings The results indicate that tacit knowledge sharing influences positively the auditors’ values, ethics, attitudes, experiences, skills and knowledge (i.e. audit quality inputs). This finding implies that active tacit knowledge sharing within a small audit firm is a strong driver for audit quality through improving its inputs. The results also demonstrate that structural, relational and cognitive social capital indirectly affect audit quality inputs through tacit knowledge sharing. Accordingly, social capital can be viewed as an audit firm resource that can smooth auditors’ tacit knowledge-sharing progress. Originality/value The IAASB encourages audit firms to explore ways to boost audit quality. This study offers empirical evidence on the influence of tacit knowledge sharing on audit quality inputs as a way to boost audit quality. It also offers insights into the value of social capital dimensions and indicates the driving forces to make auditors willing to engage in tacit knowledge sharing and, as a result, improve audit quality inputs.

Professional standards guide external auditors to consider the effect of the client's internal audit work and opportunities to utilize the direct assistance of the internal audit function when planning and conducting audits. We examine the effect of internal audit assistance on external audit timeliness via the extent of external audit delay. We hypothesize and find that internal audit assistance is negatively associated with external audit delay. We also document moderating relationships between internal audit assistance and other internal audit environment characteristics, such as the extent of internal control reliance, coordination with the external auditor, and the investment in internal audit quality. Overall, our findings have implications for firms and external auditors who are evaluating the role and use of internal audit functions. Namely, our findings suggest that internal audit assistance may not only result in audit cost savings, but also in greater audit efficiencies. These findings are particularly germane given the challenges faced by external auditors in the form of greater audit requirements, shorter regulatory filing deadlines, resource constraints, and audit fee pressures.

Purpose – The purpose of this paper is to characterize how those who perform (internal auditors), mandate (audit committee (AC) members), use (AC members and external auditors) and normalize (the Institute of Internal Auditors (IIA)) internal audit work, respectively make sense of the notion of “internal audit quality” (IAQ). Design/methodology/approach – This study is predicated on the meta-analysis of extant literature on IAQ, 56 interviews with internal auditors and AC members of public or para-public sector organizations in Canada, and archival documents published by the IIA, analyzed in the light of framing theory. Findings – Four interpretative schemes (or frames) emerge from the analysis, called “manager,” “éminence grise,” “professional” and “watchdog.” They respectively correspond to internal auditors’, AC members’, the IIA’s and external auditors’ viewpoints and suggest radically different perspectives on how IAQ should be defined and controlled (via input, throughput, output or professional controls). Research limitations/implications – Empirically, the authors focus on rare research data. Theoretically, the authors delineate four previously undocumented competing frames of IAQ. Practical implications – Practically, the various governance actors involved in assessing IAQ can learn from the study that they should confront their views to better coordinate their quality control efforts. Originality/value – Highlighting the contrast between these frames is important because, so far, extant literature has predominantly focussed on only one perspective on IAQ, that of external auditors. The authors suggest that IAQ is more polysemous and complex than previously acknowledged, which justifies the qualitative and interpretive approach.

PurposeThere has been very little qualitative “fieldwork” of audit practice. This is especially the case in relation to investigations into how audit engagements proceed. The purpose of this paper is to engage with audit practice in order to explore and explain the internal dynamics and paradoxical conditions within audit engagement teams.Design/methodology/approachThe research adopts a qualitative methodology, framed around an intensive case study that involves several methods of data collection and analysis including interviews, observation and document analysis. The authors observe audit team practices, work programmes and organisation including observations of individual and teams involved in audit engagements.FindingsUsing the lens of paradox theory, the authors explore the backstage of audit work, where audit teams are challenged with recurring contradictory requirements and opposing demands. The authors provide insight on the complexity associated with inadequate resourcing and planning that tend to stimulate the emergence of paradoxes in audit engagement work in a government audit context. As a result, the authors identify the occurrence of cascading reduced audit quality practices (RAQP) as the teams respond to the paradoxes they face.Originality/valueThe authors reveal the interlinked and cumulative coping strategies, namely, downplaying responsibility and downscaling audit processes. These strategies are performed concurrently by team leaders and audit members to manage paradoxical tensions. The authors also identified superficial audit supervision as another type of RAQP performed by team leaders.