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    A Framework for Understanding and Researching Audit Quality
    research summary posted February 17, 2015 by Jennifer M Mueller-Phillips, last edited February 17, 2015, tagged 11.0 Audit Quality and Quality Control 
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    Title:
    A Framework for Understanding and Researching Audit Quality
    Practical Implications:

    This study identifies the gap between audit research and audit practice. It recognizes key elements of audit quality and suggests additional research to be performed that could potentially bridge that gap. The research suggested in this study aims to help to comprehensively understand the drivers of audit quality by starting with an analysis of the macro-level inputs of audit quality, and then studying how they influence and shape the micro-level inputs. Further, several reasons are proposed to explain why the use of auditing research is not generally deemed important by audit practitioners, but that cooperation between practitioners, regulators, and scholars would improve overall audit quality.

    For more information on this study, please contact Jere R. Francis. 

    Citation:

    Francis, J.R. A Framework for Understanding and Researching Audit Quality. Auditing, A Journal of Practice and Theory. 30 (2): 125- 152.

    Keywords:
    audit quality, research
    Purpose of the Study:

    This article serves to provide a guide for future research in the study of audit quality. 

    Design/Method/ Approach:

    The author developed a framework for studying audit quality at various levels of analysis. The levels identified are: Audit Inputs, Audit Processes, Accounting Firms, Audit Industry and Audit Markets, Institutions, and Economic Consequences of Audit Outcomes. 

    Findings:
    • Audit Inputs- 1) The people who do the audits and 2) the audit tests that are performed. The quality of the audit is increased by the more competent people are and the higher the quality of evidence generated from the audit tests is. The author suggests that more research should exist to develop comprehensive models of audit testing.
    • Audit Process- The implementation of the audit inputs. These are the decisions and judgments made by auditors in order to meet the requirements of audit standards.
    • Accounting Firms- 1) Engagement teams, 2) Hiring, training, compensations, and development of audit guidance 3) Audit reports with the firm’s name. The author suggests that the audit quality metrics listed in IOSCO provide little information about audit quality, and rather an investigation of measures that have been shown to systematically affect audit quality, paired with a greater transparency of audit firms reporting of their operations, would be a more useful indicator of both overall accounting firm quality and engagement specific audit quality.
    • Audit Industry and Audit Markets- 1) Accounting firms constitute an industry and 2) Industry structure affects markets and economic behavior. The author suggests that more research is needed to understand the effect of industry structure with regards to audit quality as the Big 4 firms continue to dominate the market and create an oligopoly.
    • Institutions- Institutions, like the SEC, affect auditing and provide incentives for quality. Research that analyzes the role of auditing standards and research that identifies which is the main institutional driver of audit quality is necessary to properly determine the role of regulating institutions in audit quality.
    • Economic Consequence of Audit Outcome- An economic analysis demonstrates that an audit has value and can result in material economic consequences; additionally, market responses to an audit provide evidence of the effects of differential audit quality. The author suggests that more research should be done on the effects of audit quality on economic outcomes and the economic consequences of an audit. 
    Category:
    Audit Quality & Quality Control