Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees

E. Carson, R. Simnett, U. Thurheimer, A. Vanstraelen*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Web of Science)

Abstract

We study what determines the involvement of component auditors in multinational enterprise (MNE) group audits and the association with audit quality and audit fees. Using unique Australian disclosures of group audit fees paid to the principal and component auditors, we first document that MNE complexity, MNE internationalization, and auditor characteristics are associated with component auditor involvement, and extent and type of component auditor involvement. Next, we find that involvement of component auditors benefits audit quality as long as the principal auditor conducts a substantial amount of work. Once the involvement of component auditors exceeds a certain level, audit quality decreases. We also document that audit fees are higher in the presence of a component auditor and increase with the extent of involvement, irrespective of component auditor type. Our results contribute to the emerging literature on group audits and provide empirical evidence on regulatory concerns about group audit quality.
Original languageEnglish
Pages (from-to)1419-1462
Number of pages44
JournalJournal of Accounting Research
Volume60
Issue number4
Early online date24 Jan 2022
DOIs
Publication statusPublished - Sep 2022

Keywords

  • group audit
  • component auditor
  • multinational audit
  • audit quality
  • audit fees
  • EARNINGS MANAGEMENT
  • INVESTOR PROTECTION
  • INDUSTRY EXPERTISE
  • PCAOB
  • FIRMS
  • WIDE
  • SIZE

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