A contextual Analysis of Audit Quality in Practice

This paper explores the manner in which audit practitioners and audit committee members construct meanings for the concept of audit quality that could be influential in the conduct of audits, and considers those meanings in the broader societal and economic context of practice. The concept of audit quality has been examined extensively in research studies looking at the links between observable signals of auditor quality and indicators of financial reporting quality. It has also been employed in the practitioner and regulatory arenas to motivate and justify developments in standards and other regulatory actions. However less is known about what the term means in the process of the conduct of the audit, that is, the behaviours and attributes that practitioners associate with audit quality. Also, little information is available about audit committee members‟ understanding of the term and how it features in the audit committee process. Based on evidence from 22 interviews with audit partners and audit committee members in the UK, the study identifies five dimensions that give meaning to audit quality in practice – compliance quality, financial statement quality, service quality, operational quality and professional quality. The audit practitioners‟ construction of these dimensions of meaning for audit quality is influenced by interactions with other audit market constituents as well as economic and societal forces in the auditing environment. Similarly, the audit committee members‟ dimensions for audit quality are associated with their interactions with auditors and comfort about audit quality is influenced by relational rather than technical aspects of audit quality. The study highlights several key findings. Auditors perceptions of what quality means in practice are underpinned by factors such as the need to legitimise the conduct of the auditor, to restore trust and confidence in the public at large about the quality of audit services, to maintain profitability and the survival of the audit firm given the competitive and commercial pressures in the audit market, and to legitimise firm standards, audit methodology and the resulting audit process to outside constituents. For audit committees, informal communications, interpersonal relationships and activities during audit committee meetings play a key role in influencing the audit committee‟s perceptions of the meaning of audit quality.