Audit quality research in the United States

DeAngelo (1981) defines a high-quality audit as an audit in which: (1) the risk that an undetec ted material error exists in the financial statements is kept at a low level, and (2) material financial statement errors uncovered during the audit are corrected or the auditor’s report is appropriately modified. Unfortunately, it is difficult, if not impossible, to directly observe, there two compo nents of audit quality. As an alternative, research ers have used surrogate measures to evaluate audit quality. Studies in the U.S. have examined audit quality by focusing on: (1) litigation against audit firms, (2) auditor selection, auditor changes, and firm size, (3) the nature of auditors’ opinions, (4) the pricing of audit services, and (5) perceptions of users. This literature review paper summarizes selected studies from these different areas.