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How Do Market Agents Assess Audit Quality?, Adam Esplin, Karim Jamal, Shyam Sunder
How Do Market Agents Assess Audit Quality?, Adam Esplin, Karim Jamal, Shyam Sunder
Shyam Sunder
The Public Company Accounting Oversight Board (PCAOB) in the U.S. regulates auditing and seeks to promote its quality, a difficult-to-define concept. To understand how agents involved in private companies think of audit quality, we interview their CFOs, auditors, bankers, board members, bonding agencies, and some private equity investors. We find that a variety of agents demand an audit while retaining their scepticism and seeking independent corroboration of what they learn from the audited financial statements. Management selects the auditor. Audit Quality is assessed based on the degree to which the audit plan (inputs and risk assessment processes) aligns with the …