Access the full text.
Sign up today, get DeepDyve free for 14 days.
We examine how investors perceive audit quality when regulators adopt different enforcement styles to communicate audit inspection findings, and when the audit firm responds to the inspection findings. We employed a 2 × 3 between‐subjects experimental design, with regulatory enforcement style (critical or supportive) and audit firm response (defensive actions or remedial actions or control) as the independent variables. We find that investors perceive a relatively high level of audit quality when the audit firm chooses to take remedial actions, regardless of regulators' enforcement styles. In contrast, investors perceive a relatively low level of audit quality when the audit firm chooses to take defensive actions in response to regulators that impose a critical enforcement style. Additional analyses show that investors' perception of audit quality mediates the joint effects of regulatory enforcement styles and audit firm response on willingness to invest. Our findings suggest implications for the ways that regulators adopt different enforcement styles, which should be of interest to audit practitioners and regulators, as the findings show the potential consequences of different firm response strategies to inspection findings.
International Journal of Auditing – Wiley
Published: Oct 1, 2022
Keywords: audit quality; investor judgement; regulatory enforcement; remedial action
Read and print from thousands of top scholarly journals.
Already have an account? Log in
Bookmark this article. You can see your Bookmarks on your DeepDyve Library.