Audit mandates, audit firms, and auditors

Arbeitspapier

Audits by private, third-party auditors are frequently mandated to ensure compliance with regulations (e.g., accounting or environmental standards). We examine how such mandates shape the market for audits. In our empirical examination, we focus on one of the oldest and most prominent audit markets, the market for audits of firms' financial accounting. Using novel data on firms, audit firms, and auditors-the key players in the market-, we find that audit mandates increase the number of audits, audit firms, and auditors, but decrease average auditor wages. These findings are consistent with mandates creating demand for low-quality audits, originating from involuntarily audited firms, in a market with differentiated audit qualities. In line with this interpretation, we find that the regulatory audit demand emanates from smaller firms with limited incentives to obtain audits voluntarily; and is served by smaller audit firms and less experienced auditors. Collectively, our findings suggest that the promise of audit mandates as a means to ensure regulatory compliance may be limited by the emergence of low-quality audits.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: New Working Paper Series ; No. 333

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; Corporate Finance and Governance: Government Policy and Regulation ; Labor Demand ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Wage Level and Structure; Wage Differentials ; Monopsony; Segmented Labor Markets ; Business and Securities Law ; Market Structure, Firm Strategy, and Market Performance: General ; Economics of Regulation ; Personal, Professional, and Business Services ; Auditing ; Accounting and Auditing: Government Policy and Regulation
• Subject: Auditing ; Mandates ; Employees ; Wages ; Quality ; Market Structure

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Breuer, Matthias ; Le, Anthony ; Vetter, Felix
• Event: Veröffentlichung
• (who): University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State
• (where): Chicago, IL
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/278751
• Last update: 10.03.2025, 11:44 AM CET