Audit quality differences among auditors: The case of Hong Kong. Audits play a critical role in satisfying the public interest in strengthening accountability and supporting confidence in financial reporting. Conventionally, audit quality is defined as a probability that financial statements are free from material misstatements. | Journal of Economics and Development, , , April 2015, pp. 75-92 ISSN 1859 0020 Audit Quality Differences Among Auditors: The Case of Hong Kong Tyrone M. Carlin The University of Sydney, Australia Email: Nigel Finch Saki Partners, Australia Email: nigel@ Dung Manh Tran The National Economics University, Vietnam Email: tmdungktoan@ Abstract Audits play a critical role in satisfying the public interest in strengthening accountability and supporting confidence in financial reporting. Conventionally, audit quality is defined as a probability that financial statements are free from material misstatements. The existence of a positive relationship between audit firm size and audit quality has long been accepted in previous literature. This has resulted in numerous studies collecting evidence of differential audit quality relative to the size of audit firms, both large and small. Consequently, the conclusion has been asserted that larger audit firms produce a higher and more homogenous audit quality. The collapse of Arthur Andersen, however, has undermined the premise that large audit firms provide higher audit quality than smaller firms. This research investigates audit quality based on the extent of compliance levels with disclosure requirements pertaining to goodwill impairment of large listed Hong Kong firms in the third year transition to International Financial Reporting Standards (IFRS). The result found that audit firm identity appears to be a significant proportion of crosssectional variation, in which compliance levels and disclosure quality varied considerably among auditors. Keywords: Goodwill accounting; audit quality; HKAS 36; impairment testing; Hong Kong. Journal of Economics and Development 75 Vol. 17, , April 2015 1. Introduction accounting methods and evidence relevant to the amounts and disclosures in the financial statements, and collects sufficient evidence to give reasonable
