Can Individual CPA Sanction Improve Audit Quality of the Firm?
Posted: 16 Sep 2008
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: Suggested Citation