Can Individual CPA Sanction Improve Audit Quality of the Firm?

Posted: 16 Sep 2008

See all articles by Chien-Heng Jennifer Chang

Chien-Heng Jennifer Chang

Tamkang University - Department of Accounting

Ling-Tai Lynette Chou

National Chengchi University (NCCU) - College of Commerce

Date Written: August 30, 2008

Abstract

It is instrumental for regulators and policy makers to know the impact of individual sanctions on improving audit quality of the entire firm because many countries in the world enforce disciplinary actions against individual auditors. This paper examines the improvement on audit quality of the firm after individual auditor disciplinary action and infers that both reputation effect and deterrent effect drive the other non-sanctioned fellow auditors to improve their quality thereafter. Using data from Taiwan, our empirical results show that the improvement on firm quality is found only in the Big N firm group, but not the non-Big N counterpart group, probably due to the stronger reputation effect existed in Big N firms. However, further tests on separate firm data find that not every Big N firm shows significant improvement on audit quality.

Keywords: CPA sanction, disciplinary actions, audit quality of the firm

JEL Classification: M49, M47, G38

Suggested Citation

Chang, Chien-Heng Jennifer and Chou, Ling-Tai Lynette, Can Individual CPA Sanction Improve Audit Quality of the Firm? (August 30, 2008). Available at SSRN: https://ssrn.com/abstract=1268809

Chien-Heng Jennifer Chang

Tamkang University - Department of Accounting

No.151, Yingzhuan Rd., Danshui Dist.,
New Taipei, 251
Taiwan

Ling-Tai Lynette Chou (Contact Author)

National Chengchi University (NCCU) - College of Commerce ( email )

Taiwan

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