Quantity vs Quality : A quantitative study of the determinants of audit quality
Abstract: Building on the work of Pierce & Sweeney’s study from 2004 and their Quality Threatening Behavior-model (QTB) in conjunction with Chang & Hwang (2003), this study is an explanatory quantitative study into the determinants of audit quality. I aim to determine whether an overemphasis on customer retention can serve as determinant of audit quality. The study targeted contemporary ’Big Four’ auditors in Sweden. Data was gathered by means of a questionnaire constructed according to the QTB model as outlined by Pierce and Sweeney with the addition of a customer retention factor. Challenges involved in the study included translating the instrument employed as well as making comparisons across regional contexts. For these reasons, the study was furthermore limited to larger city firms. The conclusions of the study found that customer retention in fact could serve as a determinant of audit quality. A series of regression models, with slight alterations to account for robustness vulnerabilities, were tested, all of which pointed towards similar results: that customer retention indeed could constitute a material improvement to the QTB model. A closer investigation confirmed that these results are significant, and that the vulnerabilities feared were either contained or within tolerable range in the final model. An unexpected finding in the study was the very high explanatory power of the model derived and the small differences generated by the shift in cultural context. The high explanatory value is primarily attributed to the model already having high explanatory value as well as the questionnaire being very clear-cut. The small impact of cultural differences is explained by the fact that the Big Four are global firms and there is a large degree of mobility within the firms hence they are relatively homogenous. Ultimately, no final conclusions should be drawn, yet since the results are so strong one can begin to suspect that customer retention indeed does matter to audit quality. Hence, the author recommends further studies on this topic.
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