The Economics of Audit Production: What Matters for Audit Quality? An Empirical Analysis of the Role of Mid-level Managers within the Audit Firm
57 Pages Posted: 28 Dec 2018 Last revised: 29 Jan 2021
Date Written: January 28, 2021
Practitioners and academics have increasingly focused on identifying audit production factors associated with more effective audits. Using proprietary data, we analyze two audit team production characteristics, client-specific expertise and year-round auditing, and find that both are associated with more effective audits. We separately analyze whether the influence of these characteristics varies by audit team member to better understand who drives audit quality. In contrast to the literature which has largely focused on lead audit partners, we find that other experienced team members characteristics (i.e, managers, senior managers, and non-lead partners) explain audit effectiveness results, whereas lead audit partner characteristics do not. We further find a positive effect of these characteristics on audit fees, after controlling for the quality of the audit, consistent with audits exhibiting credence good attributes. Overall, our results highlight the importance of client specific expertise and year-round auditing, especially by other experienced team members.
Keywords: audit production; client expertise; year-round auditing; human capital; audit partners; audit managers, senior managers, and directors; audit quality; audit fees; credence goods
JEL Classification: D20; D22; J24; L23; M11; M4; M42; M48
Suggested Citation: Suggested Citation