Input vs. Output
This looks at the results of the audit and attempts to measure the level of audit quality delivered
What is an output-based measure?
This is the name for correcting and re-issuing financial statements after they have already been published.
What is a restatement?
Severity of the misconduct implied by the measure
What is Egregiousness?
This looks at observable choices clients make before/independent of the outcome
What is an input-based measure?
This is the audit opinion that signals the auditor's doubt about whether the company can keep operating.
What is a going-concern (GC) opinion?
Discreteness, Consensus on the Measurement, and Measurement Error
What are Measurement Issues?
This measure cannot be evaluated based on directness.
What is an input-based measure?
Statistical estimate of how much management artificially inflated earnings using accounting guesswork
What are discretionary accruals (DAC)?
Perception-based Measure
What is Perceived Quality?
Used to study auditor supply and client demand.
What are an output-based measure and an input-based measure?
This is the simple, most commonly used input proxy for auditor size.
What is Big N (membership)?
Extent to which the auditor influences, controls or is responsible for the output (only applies to outputs)
What is directness?
Market-Based Proxies
What is an output-based measure?
ERCs, Stock Market Reactions to audit events, cost of capital (D/E), and auditor-client market share
What are perception-based measures?
Behind closed doors, a dedicated auditor spends dozens of unbilled hours tracing obscure inventory discrepancies, ultimately forcing a client to fix a hidden material misstatement before the financial statements are released.
What is Actual Quality?