2016B04 – The auditor’s evaluation of misstatements – Exploration, drivers, and consequences

Audit quality is influenced by the context in which the audit was conducted. This dissertation examines research questions that are of concern to the audit profession, regulators and standard-setters, and the public at large. The first study demonstrates that in line with concerns of regulators and standard-setters, audit quality problems are prevalent in group audits involving component auditors, regardless of whether these components are part of the principal auditor’s network or unaffiliated, and despite a standard-setting effort to address this concern. The second study provides evidence of audit quality improvements after commencement of inspection by public oversight boards in jurisdictions worldwide. This study further describes differences in inspection characteristics and finds that audit quality improvements are driven by inspection systems that disclose inspection results. The third study investigates whether different incentives for auditors affect auditor behaviour and audit outcomes jointly. This study shows that two forms of regulatory risk and litigation risk jointly affect auditor behaviour, and that both risks reinforce each other.