Differences in Auditing Practices - A Comparative Study of Audit Tenure Effects on Audit Quality between Germany and the United States

Abstract

Using a matched sample of 1,806 firm-year observations from Germany and the United States over the sample period of 2005 to 2010, this paper examines audit practice differences between both countries. Our empirical results show qualitative similar results with regard to audit tenure effects on audit quality in Germany and the United States. The results imply that the increased process of accounting and audit harmonization worldwide have led to quite some similarities in auditing practices, respectively audit regulations. However, our empirical results also imply that beside specific audit regulation requirements, the auditing practices in Germany and the United States still differ significantly. In particular, we are able to detect generally higher levels of earnings management for German companies than their matched counterparts from the United States. Our results are robust to a variety of sensitivity tests.

Keywords: Auditing Practices, Audit Quality, Audit Engagement Tenure, Auditor Independence, German Audit Market, United States Audit Market

JEL Classification: M41