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 language | English (US) |
|---|---|
| Pages (from-to) | 201-225 |
| Number of pages | 25 |
| Journal | Accounting Review |
| Volume | 94 |
| Issue number | 6 |
| DOIs | |
| State | Published - Jan 1 2019 |
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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 journal › Article
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TY - JOUR
T1 - Auditing standards, professional judgment, and audit quality
AU - Gao, Pingyang
AU - Zhang, Gaoqing
PY - 2019/1/1
Y1 - 2019/1/1
N2 - 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.
AB - 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.
KW - Audit fee
KW - Audit quality
KW - Auditing standards
KW - Compliance mentality
KW - Professional judgment
UR - http://www.scopus.com/inward/record.url?scp=85076154521&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85076154521&partnerID=8YFLogxK
U2 - 10.2308/accr-52389
DO - 10.2308/accr-52389
M3 - Article
AN - SCOPUS:85076154521
VL - 94
SP - 201
EP - 225
JO - Accounting Review
JF - Accounting Review
SN - 0001-4826
IS - 6
ER -