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The Effect of Audit Experience on Audit Fees and Audit Quality

The Effect of Audit Experience on Audit Fees and Audit Quality Prior research on audit experience focuses on behavioral studies that are conducted by running experiments. Although these studies provide evidence on the role of experience in completing specific audit tasks, they do not shed light on how experience affects a complete audit engagement. We conduct an archival study to examine the effect of audit experience on audit fees and audit quality. Using unique data from China, where the signees of the audit report can be identified and linked with a government database containing personal information about certified public accountants, we find that experience is positively associated with audit fees and negatively associated with absolute discretionary accruals. Furthermore, we extend the research on personal characteristics of audit partners by considering the incremental effects of gender, education, engagement tenure, industry specialization, and client importance after controlling for overall audit experience. Overall, our results suggest that the auditors’ personal characteristics may serve as a signal of the level of care that will be exercised during the audit process. Our results also have implications for China’s recently announced regulation that would require localization of Big 4 offices in China. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting, Auditing & Finance SAGE

The Effect of Audit Experience on Audit Fees and Audit Quality

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References (70)

Publisher
SAGE
Copyright
© The Author(s) 2014
ISSN
0148-558X
eISSN
2160-4061
DOI
10.1177/0148558X14544503
Publisher site
See Article on Publisher Site

Abstract

Prior research on audit experience focuses on behavioral studies that are conducted by running experiments. Although these studies provide evidence on the role of experience in completing specific audit tasks, they do not shed light on how experience affects a complete audit engagement. We conduct an archival study to examine the effect of audit experience on audit fees and audit quality. Using unique data from China, where the signees of the audit report can be identified and linked with a government database containing personal information about certified public accountants, we find that experience is positively associated with audit fees and negatively associated with absolute discretionary accruals. Furthermore, we extend the research on personal characteristics of audit partners by considering the incremental effects of gender, education, engagement tenure, industry specialization, and client importance after controlling for overall audit experience. Overall, our results suggest that the auditors’ personal characteristics may serve as a signal of the level of care that will be exercised during the audit process. Our results also have implications for China’s recently announced regulation that would require localization of Big 4 offices in China.

Journal

Journal of Accounting, Auditing & FinanceSAGE

Published: Jan 1, 2015

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