Is Self-Regulated Peer Review Effective at Signaling Audit Quality?

J. Casterella*, K. Jensen, W.R. Knechel

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This study examines whether peer reviews conducted under the AICPA's self-regulatory model have been effective at signaling audit quality. Prior research has examined whether peer-review reports are associated with perceived audit quality. We examine whether peer-review reports are associated with actual audit quality. Using a unique data set obtained from the files of an insurance company, we find that peer-review findings are indeed useful in predicting audit failure (i.e., malpractice claims alleging auditor negligence), and that certain types of findings are particularly useful in this regard. We also find that peer-review findings are associated with other firm-specific indicators of potentially weak quality control or risky practices within accounting firms. Taken together, we interpret our findings to indicate that self-regulated peer review as mandated by the AICPA does provide effective signals regarding audit-firm quality.
Original languageEnglish
Pages (from-to)713-735
Number of pages23
JournalAccounting Review
Volume84
Issue number3
DOIs
Publication statusPublished - 1 Jan 2009

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