A modified audit production framework: Evaluating the relative efficiency of audit engagements.

C.C.M. Schelleman, P. Rouse, W.R. Knechel*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


We develop a model of audit production based on Data Envelopment Analysis (DEA) using labor cost as input and hours spent on evidence-gathering activities that determine the level of assurance as output. Client characteristics are considered exogenous factors that affect audit production as a whole. We apply the model to a sample of U.S.-based engagements from an international accounting firm. Results indicate that a constrained DEA model using variable returns to scale is appropriate for modeling audit production. We find that audits are more efficient for clients that are larger, have a December year-end, and are highly automated. Audits are less efficient when the auditor relies on internal control, tax services are provided, and the client has subsidiaries. We also find that a well-specified regression-based production model can control for factors that influence auditor efficiency. Finally, we find that inefficiencies are impounded in fees for some industries and firm offices.
Original languageEnglish
Pages (from-to)1607-1638
JournalAccounting Review
Issue number5
Publication statusPublished - 1 Jan 2009

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