Audit quality: An analysis of management, auditor, and environmental factors

This dissertation investigates different factors affecting the relationship among audit quality, earnings management, and auditor switches through a series of three independent but interrelated studies. When taken in conjunction, these studies provide us with a better understanding of the possible implications of recent regulatory changes that have transformed the operating procedures of CPA firms and their auditors.; The first paper, The Effect of Workload Compression on Audit Quality, examines the effects of time constraints on audit quality of December year-end companies. This study uses aggregate empirical analysis at the audit team level as previous related research has mostly examined workload compression issues from a behavioral or individual auditor perspective. In this paper, discretionary accruals are used as a proxy measure for earnings management and concomitant audit quality. The results indicate that December year-end companies display greater magnitudes of discretionary accruals. In addition, December year-end companies with income-increasing (income-decreasing) discretionary accruals are able to book more positive (negative) discretionary accruals. This result is consistent with compressed workload impairing audit quality, thus giving December year-end companies more freedom to manage earnings.; The second paper, Workload Compression as an Explanatory Factor to Auditor Switches, investigates whether workload compression is a factor contributing to the high turnover rates observed in the audit industry over the last few years. The findings of this study indicate that December year-end companies are more likely to switch auditors than non-December year-end companies. Thus, this study provides some evidence that client satisfaction is more difficult to maintain for December year-end clients given the inherent strain on limited auditor resources.; The third paper, Audit Quality Differences in Audits of Federal Programs, investigates whether audits of programs funded by the federal government are of lower quality when performed by CPA firms rather than by government auditors. Using the likelihood that the auditors disclose material weaknesses or reportable conditions as a proxy for audit quality, this study finds evidence indicating that CPA firms, regardless of size, are better quality providers than governmental auditors. This study adds to the audit quality literature by challenging previous empirical and anecdotal evidence about the performance of CPA firms in audits of government and nonprofit organizations.