The European Commission has suggested that the use of joint audits should lead to improved auditor skepticism and—by extension—audit quality, through increased accountability. However, archival research does not find support for improved audit quality in a joint audit setting. To better understand the relationship between accountability in different review regimes and auditors’ judgments, we examine the behavioral effect of implementing a joint audit relative to other review regimes based on a 1 × 3 experimental design. Forty-seven senior auditors and partners from a Big Four firm performed a going concern evaluation task under one of three review regimes: the joint audit, the internal review, and the no review regime. Notwithstanding the difference in the audiences to which auditors are accountable, there is no difference in the judgment process. In terms of their judgment outcome, however, auditors in the joint audit setting were the least skeptical in their judgment of the going concern assumption. Overall, we suggest that the joint audit may lead to unintended behavioral consequences.
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Note that Deng et al. (2014) look at a joint audit regime where the audit is conducted by one big audit firm and one small audit firm in comparison with an audit by a single big audit firm.
We predict directional hypotheses in H3a and H3b based on our theoretical arguments, notwithstanding the fact that no prior relationship has been empirically established. However, please note that neither our interpretation for the significant result, nor its significance level would have changed, had we predicted non-directional hypotheses, and reported two-tailed t tests in the results sections.
From the audit firms’ comment letters to the EC Green Paper, one can interpret that the Big Four firms are generally against the joint audit while the mid-tier firms welcomed the initiative. Our sample participants are auditors from a Big Four firm. We encourage further research to tease out potential differences between Big Four and mid-tier firm auditors.
The sample could be further reduced to N = 33 if we rigorously exclude fourteen participants who did not report the correct answer to our manipulation checks. However, the ANOVA results (p = 0.022**) reported in Table 5 of “Appendix” and means for the going concern evaluation remain qualitatively the same as for the full sample of N = 47 (Means are as follows: Joint audit = 3.14; Internal Review = 1.23; No Review = 2.11). Therefore, we report results based on the full sample (N = 47) to report analyses with higher statistical power.
Both variables are based on a sample of N = 46 (instead of N = 47) due to missing values.
The prior year preparer’s conclusion regarding the reasonableness of the going concern assumption was presented in the same manner as in Brazel et al. (2004).
The analyses are based on N = 46 (instead of N = 47) due to missing values.
The results also support Hypothesis 3b if it were a non-directional hypothesis. A two-tailed t test to compare participants in the joint audit condition and participants in the internal review condition shows a significant difference on the identical 5% significance level as for the one-tailed t test (i.e., p = 0.04, two-tailed).
The analyses are based on N = 46 (instead of N = 47) due to missing values. We also examined the three items separately and tested whether there were any differences between experimental groups. Accountability was generally high across the three items (means between 5.29 and 4.94), and there were no statistically significant differences between the three different experimental groups. This confirms the generally high accountability that participants felt across all groups toward their own firm or unspecified others (like regulators and investors).
Since archival studies on the effects of the joint audit regime used audit fees as a variable, we also asked participants to provide an estimate of the hours that they would charge the client for the task completed including the preparation of the provided workpaper, after the participants signed-off on their evaluation of the reasonableness of the going concern assumption. This question was not well formulated according to some of the participants’ feedback and caused significant differences in means and standard deviations between conditions. However, an ANOVA analysis indicated that the review regime does not significantly influence charged hours to the client. Even though the question was ill-formulated, results imply that audit fees would not differ across the three review regimes.
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Conflict of interest
None of the authors received research grants for conducting this study. All authors declare that they have no conflict of interest.
All procedures performed in our study involving human participants were in accordance with the ethical standards of our respective institutions.
Informed consent was obtained from all individual participants included in the study.
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Hoos, F., Pruijssers, J.L. & Lander, M.W. Who’s Watching? Accountability in Different Audit Regimes and the Effects on Auditors’ Professional Skepticism. J Bus Ethics 156, 563–575 (2019). https://doi.org/10.1007/s10551-017-3603-6
- Professional skepticism
- Joint audit