PhD Student: Jooanne Choi
Title: Usefulness of audit-firm transparency disclosures
Date & Time: Thursday, September 30, 2021, 2pm – 4pm
Location: Smith 122 or via Zoom
Remote Connection: https://bentley.zoom.us/j/5085085678
Remote Connection Instructions: https://goo.gl/6RxFTd
Dissertation Committee Chair: Gopal Krishnan, Trustee Professor of Accountancy, Bentley University
Committee Members: Rani Hoitash, Gibbons Research Professor of Accountancy, Bentley University; Tony Kang, Deloitte Haskins & Sells Chair and Associate Professor of Accounting, University of Nebraska-Lincoln
Usefulness of audit-firm transparency disclosures
South Korea is one of the first countries to enact audit transparency disclosure, requiring public accounting firms to file an annual report containing information on audit production, governance, operations, on-going litigations, and regulatory inspection results. I make use of this rich information setting to address issues concerning audit quality management systems, audit-firm governance, and resource allocation in audit productions.
Motivated by the recent call from the PCAOB (Public Companies Accounting Oversight Board) for better understanding of audit-firm quality control system, my first paper (sole-authored) examines the determinants of and return on firm-level investment in quality management. I find that the proportion of partners with responsibilities for supervision and operation of the quality control system is positively associated with the investment in quality management system as well as the hiring of licensed professionals. Further, investment in training is positively associated with audit firm size and affiliation with an international network. I also find that hiring of licensed professionals and investment in training of CPAs are associated with lower hours spent on review of audit engagements, suggesting payoff from investment in quality management system.
My second paper, coauthored with Gopal Krishnan, examines whether and how the timing (interim vs. year-end) of an audit engagement review is associated with the efficiency and the effectiveness of engagement quality review efforts. This topic directly relates to the PCAOB’s current project on the system of quality control. I intend to use the percentage of review efforts spent in interim review relative to the percentage of engagement-team efforts spent in interim audit as the measure of engagement review timing. My findings are potentially useful to the PCAOB in developing guidance to auditors on implementation and operation of their quality control system. By documenting empirical evidence on the varying effectiveness of engagement monitoring efforts and circumstances in which in-process engagement review is more prominent, my study also contributes to the literatures on audit production and quality control system of auditors and provide practitioners with better understanding on effort effectiveness and efficiency for audit cost management.
My third paper, coauthored with Gopal Krishnan, examines the audit production implications of two audit-firm governance characteristics: the degree of shirking incentive among partners, measured by disparity in equity holdings of partners and delegation of control from non-managing partners to managing partners (control-ownership wedge). I find that both equity disparity and control-ownership wedge are positively associated with total audit hours and partner involvement in average (across engagements) audit production. I also find that while the equity disparity and control-ownership wedge are both positively associated with client retention, the equity disparity is negatively associated with client recruitment. Collectively, my findings suggest that audit-firm governance attributes are important determinants of resource allocations in audit production and, that transparency on audit-firm governance can be informative to existing and new clients.
Overall, my dissertation illustrates how information from audit-firm transparency disclosures can be used to empirically examine issues that are of interest to audit practitioners, the Public Company Accounting Oversight Board (PCAOB), and other market participants.
Thursday, September 30 at 2:00pm to 4:00pm
Smith Technology Center, Classroom 122
Smith Technology Center 122, Bentley University, 175 Forest Street, Waltham MA 02452