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    Do Joint Audits Improve or Impair Audit Quality?
    research summary posted July 22, 2015 by Jennifer M Mueller-Phillips, tagged 11.0 Audit Quality and Quality Control, 11.09 Evaluation of Evidence, 15.0 International Matters 
    Do Joint Audits Improve or Impair Audit Quality?
    Practical Implications:

    This study provides timely policy implications for regulators. To encourage the growth of small-sized audit practices, the European Commission is considering a mandate that large companies hire at least one audit firm outside the Big 4 firms to conduct joint audits. The analysis suggests such a mandate could damage audit quality. In light of international convergence of audit practice and standards, the paper can inform global regulators’ deliberations on the desirability of joint audits.


    Deng, M., Lu, T., Simunic, D. A., & Ye, M. 2014. Do Joint Audits Improve or Impair Audit Quality? Journal Of Accounting Research 52 (5): 1029-1060.

    audit evidence precision, audit fees, joint audits
    Purpose of the Study:

    Conventional wisdom holds that joint audits, where two audit firms simultaneously and yet separately audit a company and sign a common audit report, would improve audit quality by enhancing audit evidence precision because “Two heads are better than one.” This paper challenges this wisdom. To reconcile the difference, the authors identify an economic force that may work against joint audits, that is, free-riding. In joint audits, one of the audit firms may save audit resource cost by investing less in its own audit work and taking advantage of the other audit firm’s hard work. The authors consider three regimes that may vary in the magnitudes of potential free-riding problems: single audits by one big firm (Regime B); joint audits by two big firms (Regime BB); joint audits by one big firm and one small firm (Regime BS). The goal of the paper is to compare audit evidence precision and audit fees in these three regimes.

    Design/Method/ Approach:

    The authors use analytical modeling to establish empirically testable predictions comparing audit evidence precision and audit fees under joint and single audits.


    The authors make two assumptions to capture the differences between a big audit firm and a small one. First, a big audit firm has an advantage in its auditing technology in the sense that it has a lower marginal cost of audit evidence precision than a small firm. Second, a big audit firm bears a larger proportion of misstatement costs (such as litigation risk and reputation loss) than a small firm. Under the model assumptions, the authors find that Regime BB generates the same audit evidence precision as Regime B. Also, audit fees are lower under Regime BB than Regime B. Comparing Regime BS with Regime B, the authors find that the total precision of audit evidence under joint audits is lower than that under a single audit. In addition, the audit fees under joint audits are lower than that under single audits if the technological difference between the two audit firms is small and the big firm bears a large proportion of misstatement cost.

    Audit Quality & Quality Control, International Matters
    Evaluation of Evidence