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Differential determinants and effects of audit quality

Jamie L Hoelscher, University of Nebraska - Lincoln


I examine differential determinants and effects of audit quality. In my first study, I examine the interactive effect of auditor conservatism and client pressure as it affects audit quality. Prior literature has shown that auditor conservatism is positively related to audit quality, but the effects of auditor independence on audit quality are mixed. I construct a new measure of auditor conservatism and show the joint effect of auditor independence and auditor conservatism on audit quality must be considered to understand the effect of each component individually. Specifically, I find audit quality is higher when more conservative auditors are actually less independent and audit quality is lower when more conservative auditors are more independent. In my second study, I examine audit quality over time. Theory suggests successful firms undergo long periods of convergence, punctuated by frame-breaking change. I examine audit quality, by examining accrual data from 1975-2011 and find audit quality has converged over time as the Big N has consolidated and best practices emerge. I also find overall audit quality increases over time, subject to regulatory shocks, such as the Sarbanes-Oxley Act of 2002. Lastly, in my third study, I examine "real" effects of industry specialist auditors. I find firms engaging the services of city industry specialist auditors are associated with higher levels of potentially value enhancing corporate risk-taking. In addition, I find a substitution effect, as the effect of industry specialist auditors is incrementally lower for firms with alternative forms of external monitoring.

Subject Area


Recommended Citation

Hoelscher, Jamie L, "Differential determinants and effects of audit quality" (2013). ETD collection for University of Nebraska - Lincoln. AAI3558612.