Signature Of Accountant 's Characteristics And Audit Quality

The audit theory and practice has developed from the audit firm level, office level to individual auditor level. DeFond and Francis(2005) suggest that future research should be narrowed down to individual auditor level for a better understanding of auditor behavior. Francis(2011) suggest further research should go inside the "black box" of the audit firm’s organizational structure and operations. Audit reports must be audited and signed by two auditors (audit manager and audit reviewer) as well as by an audit firm in China. Besides, we can get the information on individual auditors’personal characteristics from the CICPA’s website. Therefore, China provides a natural setting to carry out research on individual auditor level due to data availability. In this paper, we investigate individual auditors’ characteristics, how audit firm allocate individual auditors and their careers.Firstly, we separate audit manager from audit reviewer, and investigate how their experience, industry expertise and client importance affect audit quality. We use different measures of audit quality. (1) We use discretionary accruals to measure audit quality. We find that audit manager and audit reviewer play different roles in affecting audit quality. While the audit mangers’ experience and industry expertise can significantly increase audit quality, the audit reviewers’ experience and industry expertise have no significant influence on audit quality. We also find that individual auditors’ experience and independence have different influences on audit quality, and individual auditor’s experience is more important than independence in determining audit quality. After controlling for audit firm characteristics, while audit manager’s experience is still positively correlated with audit quality, audit firm’s client importance is negatively correlated with audit quality. (2) We use audit opinion to measure audit quality. We still find that audit manager and audit reviewer play different roles in affecting audit quality. While audit managers’ experience can significantly increase the probability of issuing modified audit opinions (MAOs) for clients with higher financial risk, audit reviewers’ experience and industry expertise have no significant influence. While audit manger’s client importance can increase the probability of issuing MAOs, audit reviewers’ client importance has no significant influences. Local audit firms are less likely to issue MAOs. (3) We use audit fees to measure audit quality. We find audit reviewers’ experience can increase audit fees, and individual auditors’ industry expertises have no significant influence on audit fees. Audit firms with larger size, higher industry expertise and local audit firms can earn audit fees premiums. In sum, we can draw such conclusions that audit manager and audit reviewer play different roles in affecting audit quality. Auditor mangers’ characteristics can affect actual audit quality, while auditor reviews’characteristics can affect audit fees.Secondly, we investigate how individual auditors’signing ratio and audit firms’signing concentration can affect audit quality. (1) We find when audit managers’ signing ratio increases, the probability of issuing MAOs and audit fees decrease. (2) We also find when audit firms’signing concentration increases, the probability of issuing MAOs and audit fees decrease.Thirdly, we investigate the relationship between individual auditors’probability of issuing MAOs and their career changes. We find that individual auditors’ probability of issuing MAOs is positively related to their career changes. Compared with unqualified opinions with explanatory notes, individual auditors’probability of issuing much more severe MAOs (qualified/adverse/disclaimers audit opinions) have much stronger effects on their career changes. We don’t find evidences supporting the audit firm size can moderate the above relationship. However, we do find some evidences supporting the above relationship can be reduced with higher audit monitoring.The dissertation contributes to the audit theory in several ways. (1)We consider both individual auditors’experience and independence, and complement the literature on how individual auditors’characteristics take effects (Taylor 2011; Gul et al.2013). (2) We separate individual auditors into audit manager and audit reviewer, and find they have different effects on audit quality. Audit managers’ experience and industry expertise can increase audit quality, while audit reviewers’experience can increase audit fees. The probability of issuing MAOs and audit fees decreases with audit managers’ signing ratio increasing. (3) We find audit firms’ organizational structure can have systematic influence on audit firm’s overall audit quality, complementing Francis (2011). (4) We find evidence supporting individual auditors’ lack of inputs can impair audit quality, complementing Caramanis and Lennox (2008). (5) This is the first paper investigating individual auditors’ career issues by using archival data. This research can help understand the influencing factors on individual auditors’careers and support there are conflicts of interests between audit firm and individual auditors on MAOs issuing.This dissertation still has some practical implications. (1) We suggest that the listed firm should consider not only the reputation of an audit firm but also the competence, industry expertise and audit input of individual auditors when they choose the auditor. (2) The audit firm should think carefully about how to allocate the audit managers and audit reviewers efficiently, how to train and monitor them, and how to improve their reviewing system. Besides, the audit firm should realize the negative effects of higher signing concentration and take it into consideration when making personnel allocation decisions. (3) The regulators should pay attention to whether audit reviewers are diligent and punish the negligent ones accordingly in order to cultivate a quality-oriented auditing environment. The regulators should pay more attention to the individual auditors with higher signing ratio or audit firms with higher signing concentration during making annual inspections. The regulators should increase the probabability of detecting audit frauds and the degree of punishment.