A REVIEW OF ARCHIVAL AUDITING RESEARCH

Tugas Mata Kuliah Auditing (Seminar)

Dosen Pengampuh : Dr. Sc. Damai Nasution SE., M.Si., Ak

Oleh
Lucky Maharani Safitri
041924253002 / A2P

PROGRAM STUDI MAGISTER AKUNTANSI

FAKULTAS EKONOMI DAN BISNIS
UNIVERSITAS AIRLANGGA
SURABAYA
2020
 RESEARCH SUMMARY

Title:
A review of archival auditing research
Author:
Author 1: Mark DeFond
Author 2: Jieying Zhang
Volume:
Volume 58, issue 2-3 (Sept, 2018)
Journal:
Journal of Accounting and Economics
Publisher:
Elsevier
Article Citation:
DeFond, M. and Zhang, J.A. (2014). A Review of archival auditing research. Journal of
Accounting and Economics, 58(2-3), 275-326.

Research Question
How is the recent auditing research?

Research Motivation
To summarize and critique the recent auditing research, and to provide direction for future
research.

Research Method
The authors limit their review to the archival auditing research empirically addresses
auditing-related questions, predominantly using economics-based methods of inquiry and
analysis.

Research Theories
1. What is audit quality?
a. Defining audit quality
b. The relation between audit quality and financial reporting quality
c. Measuring audit quality
  Output-based audit quality measures
 Input-based audit quality measures
 Commonly used audit quality models
 Which audit quality measures are best?
2. What drives client demand for audit quality?
a. The demand for auditing – does auditing add value?
 Evidence from audited versus unaudited financial information
 Evidence from auditor communication
 Critique and future research on the value of auditing
b. What drives client demand for audit quality?
 Client incentives to demand high audit quality
 Client competencies to fulfill their audit quality demands
 Critique and future research on the demand for audit quality
3. What drives auditor supply of audit quality?
a. Auditor incentives to supply high audit quality
 Reputation risk
 Litigation risk
 Auditor incentives captured by auditor size
b. Auditor competencies to deliver high audit quality
 Evidence from auditor industry specialization
 Evidence from auditor office size
 Evidence from the audit process
c. Institutions and other factors
d. Critique and future research on what drives auditor supply of audit quality
4. What are the regulators’ concerns about audit quality?
a. What are the effects of regulatory intervention?
 The effects of pre-SOX regulation
 The overall effects of SOX
 SOX provisions that intervene the demand for audit quality
 SOX provisions that intervene the supply of audit quality
b. Regulatory concerns about perceived threats to auditor independence
 Perceived threats to auditor independence – client demand-side factors
  Perceived threats to auditor independence – auditor supply-side factors
c. Critique and future research on regulators’ concerns about audit quality
Results
The last 15 years have witnessed profound changes to the auditing profession and a boom in
auditing research. A dominant feature of the recent research is its primary focus on audit quality. We
review and critique this research using a robust economics-based framework that provides insights
into the demand and supply of audit quality and the increasing role of regulatory intervention.
We first provide a comprehensive definition of audit quality, with higher audit quality providing
greater assurance of high financial reporting quality. Our definition reflects audit quality’s continuous
nature, encompasses the auditor’s broad responsibilities, and recognizes audit quality as a component
of financial reporting quality that is bounded by the firm’s reporting system and innate characteristics.
Equipped with this definition, we then provide a framework for choosing among and evaluating the
commonly used audit quality proxies along four dimensions: directness, egregiousness, actual-or-
perceived, and measurement issues. We observe that the most direct measures of audit quality also
capture egregious audit failures but lack the power to detect more subtle variations in audit quality.
While the less direct measures have the advantage of capturing the continuous nature of audit quality,
they are often farther from the auditor’s influence and also more susceptible to measurement
problems. We conclude that researchers should choose measures across proxy categories, and
articulate the inferences that can and cannot be drawn from the proxies. Because it is inextricably
intertwined with financial reporting quality, audit quality also depends on firms’ innate characteristics
and financial reporting systems. We review the commonly used audit quality models and conclude
that future research would benefit from more conceptual guidance in disentangling these constructs.

Conclusion
The new regulatory environment suggests that regulatory intervention is likely to play a prominent
role in shaping audit quality and recommend additional research to better understand this relatively
new risk that is likely to affect both auditors’ and clients’ incentives as well as their competencies.

Possible Extensions
Thus, the authors encourage future research to further explore the relatively under-researched
role of auditor competencies on audit quality. The authors observe that the new regulatory
environment suggests that regulatory intervention is likely to play a prominent role in shaping
audit quality and recommend additional research to better understand this relatively new risk
that is likely to affect both auditors’ and clients’ incentives as well as their competencies.