Who really performs the audit? Examining the effects of voluntary disclosure of the use of other auditors on investors’ perceptions of audit quality

Kristina C. Demek, Steven E. Kaplan, Amanda Winn

Research output: Contribution to journalArticle

Abstract

Under Rule 29, the Public Company Accounting Oversight Board (PCAOB) requires principal auditors to disclose the extent of use of other auditors on an audit engagement. This mandatory disclosure occurs on Form AP, available on the PCAOB’s website. Principal auditors may voluntarily disclose this same information in an appendix to the audit report. We experimentally examine how the joint effects of the principal auditor’s extent of use of other auditors and their use of voluntary disclosure influence investors’ perceptions of audit quality. Results indicate that investors perceive audit quality to be lowest when principal auditors use other auditors to a greater extent and only file the mandatory disclosure. We find voluntary disclosure in the audit report attenuates the perceived effect of using other auditors. Additionally, after a restatement, investors place no additional blame or liability on principal auditors that use other auditors to a greater extent or choose voluntary disclosure.

Original languageEnglish (US)
Pages (from-to)1-19
Number of pages19
JournalAuditing
Volume39
Issue number1
DOIs
StatePublished - Feb 2020

Keywords

  • Audit quality
  • Audit report
  • Other auditors
  • PCAOB
  • Voluntary disclosure

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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