Auditing standards, professional judgment, and audit quality

Pingyang Gao, Gaoqing Zhang

Research output: Contribution to journalArticle

Abstract

We propose a model to study how auditing standards affect audit quality. We posit that both auditors’ incentives and expertise are relevant for audit effectiveness. Auditing standards are useful in mitigating the auditors’ possible misalignment of interest with investors. However, auditing standards also restrict auditors’ exercise of professional judgment, which, in turn, leads to compliance mentality and reduces auditors’ incentives to become competent in the first place. We identify the conditions under which stricter auditing standards increase or decrease audit quality. Moreover, stricter auditing standards always increase audit fees, but can benefit auditors at firms’ expense. The model also generates many testable empirical predictions.

Original languageEnglish (US)
Pages (from-to)201-225
Number of pages25
JournalAccounting Review
Volume94
Issue number6
DOIs
StatePublished - Jan 1 2019

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Professional judgment
Audit quality
Auditors
Auditing standards
Incentives
Expertise
Investors
Prediction
Audit fees
Misalignment
Exercise
Audit effectiveness
Expenses

Keywords

  • Audit fee
  • Audit quality
  • Auditing standards
  • Compliance mentality
  • Professional judgment

Cite this

Auditing standards, professional judgment, and audit quality. / Gao, Pingyang; Zhang, Gaoqing.

In: Accounting Review, Vol. 94, No. 6, 01.01.2019, p. 201-225.

Research output: Contribution to journalArticle

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