| Description |
In this dissertation I investigate management perceptions of audit quality. Despite management's key stakeholder role in the audit process, their impact in assessing and evaluating audit quality has been overlooked in the post-Sarbanes-Oxley environment. Although audit committees are charged with governance over the audit process, management influences auditors, and by extension audit quality, management both influences day-to-day interactions between the auditor and the audit client and exerts significant influence on the audit committee's decision to retain an auditor for future engagements. Thus, auditors are incentivized to understand how their actions are perceived by management. For my overall research question, I ask what factors influence management perceptions of audit quality. I provide two major contributions to the literature. First, I surveyed management about their perceptions of audit quality and how auditors are able to demonstrate audit quality on their engagements. After coding these responses according to academic and regulatory frameworks of audit quality, I find that management focuses most heavily on input and process characteristics of the auditor and audit engagement when evaluating audit quality. Output characteristics are important when defining audit quality, but are considerably less important to management in evaluating auditors. Additionally, academics have typically overlooked the impact of interpersonal relationships between stakeholders in the audit process, but these relationships are important to management intheir evaluations of auditors. Second, I conducted an experiment that investigates how management views an auditor's use of industry norms as a justification method for an audit adjustment under imprecise accounting standards. I find that under more precise accounting standards, management evaluates audit quality based on the underlying accounting attributes of the transaction. When accounting standards are less precise, management rates audit quality higher when auditors justify a decision using an industry norm regardless of the underlying attributes of the transaction. Thus, when accounting standards are less precise (i.e., more principles-based), auditors may have an incentive to engage in herding behavior at the expense of their professional judgment. |
