1. 26 AUGUST 2013
BUSINESS
A
udit quality is indeed a complex and elusive concept.
It has been much debated but it is still very little
understood.
Over the past 20 years, a number of researchers have
tried to research and define audit quality. However,
there is still no consensus on what audit quality is or
how to measure it. That is because audit quality relies on perceptions,
and those perceptions depend on whose views are taken into
consideration.
Given how difficult it is to define audit quality, researchers, regulators
and professionals often refer to audit quality by negation, much like
when one tries to define independence, as what is “not” audit quality.
The International Auditing and Assurance Standards Board’s
(IAASB) recently developed Framework for Audit Quality (the
Framework) goes some way to systemise the current thinking and
the key elements that underline audit quality. It classifies those into
inputs, outputs, interactions and contextual factors.
Researchers have so far generally focused on the characteristics
of the auditor and the audit team as critical parts of the input. The
research has found that individual characteristics such as professional
scepticism, specialist knowledge and the expertise of the auditor are
important factors contributing to the quality
of auditors’ judgement and therefore to audit
quality.
On the other hand, research has shown
that client-related incentives, such as
client retention and economic pressures,
particularly those within the firm, undermine
auditor judgement and audit quality.
The audit process as part of the input
under the Framework has been researched
mainly by assessing auditors’ judgement
when assessing risks, audit production and
evaluation of audit evidence.
The research has found that auditors are
susceptible to the same biases and errors in
their judgements as is observed in general
decision making. However, the appropriate
level of expertise and familiarity with the
task tends to counteract auditors’ biases
and errors. That means that matching
an appropriate level of auditor expertise
Audit quality –
an academic’s
perspective
Research can give us insights
into audit quality.
DR NIVES BOTICA REDMAYNE FCA

2. 27AUGUST 2013
and experience to the task is critical for
maintaining audit quality.
When it comes to the actual production
of an audit, the degree of complexity and
risk seems to drive the auditor’s effort. The
research of audit production has shown that
auditors generally increase their audit effort
and work more audit hours in response
to an auditee’s increased risk factors and
complexity.
Similarly, when it comes to evaluation of
audit evidence, the research has shown that
higher levels of audit review, including audit
partner review, tend to reduce biases and
mistakes in auditors’ judgement and hence
increase audit quality.
Audit outcomes have been researched a lot
as well, despite the fact that an outcome of
an audit is mostly unobservable. Therefore
the researchers have tended to define audit
quality as what it is “not” (manifested as
errors or deficiency) when it comes to audit
outcomes, and have used mostly indirect but
measurable proxies for audit outcomes.
For example, researchers have proposed
that a low quality audit can be associated
with evidence of financial statement
restatements, presence of abnormal accruals,
or where audit deficiencies are identified
during the regulatory review.
In the same line of research the presence of
going concern qualifications for financially
distressed auditees is generally seen as
evidence of higher audit quality.
The contextual factors prevalent in the
literature that influence audit quality are the
effects of compulsory partner rotation, non-
audit fees and auditor tenure on auditors’
judgement and audit outcomes.
There are mixed findings about those
contextual factors on the audit quality.
For example, there is evidence that audit
partner compensation affects audit outcomes
and audit quality.
The research of the effects of non-audit
fees on audit quality is also mixed and
it suggests that provision of non-audit
services by auditors is viewed negatively by
some stakeholders in the auditing process.
Findings of some research even suggest that
provision of non-audit services can lead to
a “knowledge spill-over” effect and can
improve audit quality. Studies have shown
that to be the case with auditor-provided tax
services.
Auditor tenure has generated a lot of
debate and some research as well. The
debate has revolved around arguments that
the shorter the auditor’s tenure, the less
knowledge the auditor has about the client
and hence a lower level of audit quality
could result from such an arrangement.
Contrary to this, longer auditor tenure could
lead to impairment of auditor’s objectivity
and therefore influence reduction in audit
quality.
CONCLUSIONS AND FUTURE RESEARCH
Audit quality has been of interest to
researchers for over two decades now. There
is a lot that is known about audit quality as
a result of that research, but there is still a lot
more room for future research.
For example, there are some undeniable
and useful facts about the characteristics
of an auditor, or the audit team, that are
important input factors contributing to
audit quality. This knowledge was gained
through research. It is also known through
research that the perception of audit quality
is affected by the auditor’s knowledge of the
auditee, industry experience, compliance
with auditing standards, auditor’s and audit
firm’s ethics, and the economic independence
of the auditor.
A great deal of research on audit quality
has focused on archival research and on
externally observable manifestations of audit
quality. Future audit quality research should
focus on surveys and interviews and other
qualitative research techniques in relation to
boards of directors, investors and interested
third parties, to gain an understanding of
their perceptions of audit quality.
To perform such research and further
improve the understanding of audit quality,
researchers will need access to new and
better quality proprietary data on the drivers
of audit quality in audit firms, within the
auditees and from the files of regulators.
Dr Nives Botica Redmayne FCA is a senior
lecturer at Massey University.
The research
has found
that
auditors are
susceptible
to the same
biases
and errors
in their
judgements
as is
observed
in general
decision
making

3. Copyright of Chartered Accountants Journal is the property of Institute of Chartered
Accountants of New Zealand and its content may not be copied or emailed to multiple sites or
posted to a listserv without the copyright holder's express written permission. However, users
may print, download, or email articles for individual use.