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Do Joint Audits Improve or Impair Audit Quality?
Author(s) -
DENG MINGCHERNG,
LU TONG,
SIMUNIC DAN A.,
YE MINLEI
Publication year - 2014
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12060
Subject(s) - audit , quality audit , accounting , joint audit , business , audit evidence , joint (building) , audit plan , performance audit , information technology audit , internal audit , engineering , architectural engineering
ABSTRACT Conventional wisdom holds that joint audits would improve audit quality by enhancing audit evidence precision because “Two heads are better than one.” Our paper challenges this wisdom. We show that joint audits by one big firm and one small firm may impair audit quality, because, in that situation, joint audits induce a free‐riding problem between audit firms and reduce audit evidence precision. We further derive a set of empirically testable predictions comparing audit evidence precision and audit fees under joint and single audits. This paper, the first theoretical study of joint audits, contributes to a better understanding of the economic consequences of joint audits on audit quality.