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Entrance requirements to the audit profession within the EU and audit quality

Entrance requirements to the audit profession within the EU and audit quality This paper examines the relation between the stringency of entrance requirements to the audit profession within the EU and audit quality. Regulators and standard setters generally believe that such entrance requirements have beneficial effects by increasing audit quality. Whether this is indeed the case, however, is an empirical question given that regulations governing the entry to the audit profession are not the product of competitive market forces. We argue that a higher educational degree and longer traineeship period will result in higher audit quality. We also hypothesize that a professional oath will be positively associated with audit quality. Based on a sample of 3,782 firms from 20 different EU member states, we assess the relation between these requirements and abnormal working capital accruals. Our findings indicate that the requirement of a master's degree compared with a bachelor's degree is significantly associated with better accruals quality of audited financial statements. Second, we find that abnormal working capital accruals are lower in countries that require a traineeship period of at least 3 years. Finally, we find mixed evidence for the effect of a professional oath as part of the entrance requirements on audit quality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

Entrance requirements to the audit profession within the EU and audit quality

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References (90)

Publisher
Wiley
Copyright
© 2018 John Wiley & Sons Ltd
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/ijau.12127
Publisher site
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Abstract

This paper examines the relation between the stringency of entrance requirements to the audit profession within the EU and audit quality. Regulators and standard setters generally believe that such entrance requirements have beneficial effects by increasing audit quality. Whether this is indeed the case, however, is an empirical question given that regulations governing the entry to the audit profession are not the product of competitive market forces. We argue that a higher educational degree and longer traineeship period will result in higher audit quality. We also hypothesize that a professional oath will be positively associated with audit quality. Based on a sample of 3,782 firms from 20 different EU member states, we assess the relation between these requirements and abnormal working capital accruals. Our findings indicate that the requirement of a master's degree compared with a bachelor's degree is significantly associated with better accruals quality of audited financial statements. Second, we find that abnormal working capital accruals are lower in countries that require a traineeship period of at least 3 years. Finally, we find mixed evidence for the effect of a professional oath as part of the entrance requirements on audit quality.

Journal

International Journal of Auditing – Wiley

Published: Nov 1, 2018

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