Determinants of Audit Quality in the Public Sector
Author(s): Donald R. Deis, Jr. and Gary A. Giroux
Source:
The Accounting Review,
Vol. 67, No. 3 (Jul., 1992), pp. 462-479
Published by: American Accounting Association
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THE
ACCOUNTING REVIEW
Vol.
67, No. 3
July
1992
pp. 462-479
Determinants
of
Audit
Quality
in

quality
surrogate, brand name re-
flects
differences
between
auditor size
categories
in
concern for reputation
(DeAngelo 1981b)
and
the ability to withstand
client
pressure (Goldman
and
Barlev
1974).
It has not,
however, been
demonstrated that these fea-
tures
characterize
quality differences
within
an
auditor size category.
Although
tests are
difficult without a
direct

that the
auditor
will
both dis-
cover and
report
a
breach
in
the
client's
accounting
system (DeAngelo
1981a).
Two
explanations
for variations
in
audit
quality
involve
reputation
and
power
conflict. Because
an
incumbent auditor
captures
client-specific
quasi-rents,

audit
quality
decreases
as
auditor tenure
increases
and
(2)
audit
quality
increases with the number
of
'
Several
studies have addressed
this
issue,
from the
perspective
of both the
private
sector (Danos
and
Eichenseher 1982;
Eichenseher
and Danos 1981;
Francis
1984;
Francis and Stokes 1986;Francis
and Wilson

University,
the ad hoc associate
editor,
and the
editor.
The first author gratefully
acknowledges
the Corpus
Christi State
University
Grant Program
for
funding
this research.
We are also grateful
for the cooperation
of Tom Canby
and Ed Randall at
the Texas Education
Agency.
Submitted
April
1989.
Accepted
December 1991.
462
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Deis, Jr.
and

can increase the auditor's
ability
to withstand client
pressure.
The
expecta-
tions are that
(3) audit quality
is
negatively
related to
the size
and
financial
health of
the firm
and
(4)
audit
quality improves
when
the
auditor knows
work
will be
subject
to
review
by
third

relatively
more direct measure
of
audit
quality.
Between 1984
and
1989
the
Audit Division
of
the Texas
Education
Agency (TEA)
conducted
308
QCRs. Numerical
scoring
of 232
QCR letters of
findings represents
the measure of
minimum audit
quality
and the
dependent
variable in the
regression
analysis. Explanatory
variables

robust
to
explain
quality
variations
within
an
audit
size
group.
The
results
also confirm earlier studies
relating
audit
quality
to
audit
report
timeliness
(Dwyer
and Wilson
1989)
and
actual audit
hours
(Palmrose
1986, 1989).
We
conclude that audit hours is

firm nor the school district is
identified in
the data.
rT
HE
following
section describes the theoretical
framework for this study and pre-
sents
hypotheses
for
testing. The next section
describes the empirical method,
including the
measurement of audit quality by
using QCR results. The last two
sections cover
empirical results and conclusions.
I.
Theoretical
Framework and
Hypotheses
Audit
quality is
a continuing issue in the
profession (AICPA 1987; GAO 1985). A
credibility gap
in
governmental financial reports
arose following discovery that poor

expenses,
recognized
revenues on
an
accrual
basis
and
expenses
on the
cash
basis, did not
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464
The Accounting
Review, July
1992
OMB
Circular
A-128
in 1984,
seeking
to improve financial
reporting practices,
increase
auditor
reporting
responsibilities,
and
establish

1987),
and recent research
suggests
that
audit
quality
may
affect
the
public
sector
audit
market in unique
ways (Copley
1989;
Roberts
et
al. 1990).
Like
audit
failures
in
the
private
sector,
audit quality
deficiencies
in
the public
sector

onstrate that
private
sector
research
is
generalizable
to the public sector.
The
theoreti-
cal framework
developed
in this
study
is
based
primarily
on
private
sector
research
and
will
be
empirically
tested
to
determine
the
merits
of

The
probability
of
dis-
covering a
breach
depends
on
the
auditor's
technical
capabilities
and
the
probability
of
reporting
the
error
depends
on the
auditor's
independence.
Prior
studies
(DeAngelo
1981a;
Goldman
and Barlev
1974;

about
technical
capabilities
(e.g.,
auditor
experience,
education, profes-
sionalism,
and
firm audit
structure),
capability
and independence
are
difficult
to
disentangle.
Although
this
study
also adopts
the
independence
framework
to
evaluate
the
audit
quality
issue,

conflict (Goldman
and
Barlev 1974;
Nichols
and
Price
1976).
These
explanations
are
adopted
as
a general
theoretical
framework
for this
study.
The
Auditor-Reputation
Explanation
Incumbent
auditors
capture
client-specific
quasi-rents
and have incentives
to
lower
quality
in

their
survival from losing
a
particular
client
is
minimal.
Thus,
two
proxies
of audit firm
size
are
thought
to
affect
audit quality:
(1)
the
number
of
clients
and
(2)
the
percentage
of
audit
fees
dependent

bank
accounts,
did
not
have
a general
ledger,
and had no control
over
its cash
flow.
An
analysis
of
other
cities
indicated
that
procedures
contrary
to
generally
accepted
accounting principles
and unaudited
fi-
nancial
statements
were
common

implement
the
requirements
of
the
Single
Audit
Act
of
1984.
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Deis, Jr. and Giroux-Determinants
of Audit Quality
465
distinction to test the
robustness of
existing
explanations
for
variations
in audit
quality
within
small
(non-Big
Eight)
CPA firms.4
Several
recent studies find evidence

engagements
since
auditors
are
offering
initial
price
discounts
to
capture
future
quasi-rents
(DeAngelo
1981a, 113).
It is
the
attempt
to
protect
these
quasi-rents
that
threatens
auditors'
independence.
Faced with
competitive
pricing
pressures,
an

audit
procedures,
or
may
fail to maintain an attitude
of
professional
skepticism
(Mautz
and Sharaf
1961;
Shockley
1982)
The
first research
hypothesis
is
based on
DeAngelo's
explanation
of
quality
deterioration with
auditor
tenure.
Hi:
Audit
quality
decreases as
auditor tenure

district (ISD),
the
number of
other
ISD
clients
served
reflects
industry
expertise
and,
therefore,
measures
variations in
technical
capabilities. The
expectation is
that the
number of ISD
clients
would
also
indicate
audit
quality,
although the
interpretation
of that
effect is
confounded

violate
professional
standards
(Goldman
and
Barlev
1974;
Nichols and
Price
1976;
Shockley
1982). The
balance
of power
tilts
toward the
audited
client
whenever
the
auditor
places
"greater
significance
on
the
rewards
mediated
by
the

variations
in
audit
quality
among
these
firms is of
interest
to
regulators,
professional
groups,
managers
of
governmental
units,
and to
CPAs
active
in
the
public
sector.
The
ability
of
existing theories to
explain
audit
quality

Sharaf
(1961,
208)
state
that
"except
in
extreme
cases,
the
problem
of
maintaining
independence
must
rest
with
the
individual
practitioner.
Occasionally,
of
course,
infringement
will
be
so
flagrant
that
it

question.
In a
great
many
more
cases,
however,
the
greatest
threat
to
his
independence
is a
slow,
gradual,
almost
casual
erosion of
his
'honest
disinterestedness'
"
(emphasis
added).
6
Several
recent
studies
illustrate

name
auditors;
and
changes
to
a
brand
name
auditor
evoke
favorable
market
responses
(Eichenseher
et al.
1989).
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466
The
Accounting Review,
July 1992
The client desires attested financial statements that will have an expected effect on
particular third parties,' and individual auditor expertise holds little value to the
client.
Regardless of the nature of the specific audit issues, the client will use pressure to
achieve the primary goal of influencing certain third parties. Because the auditor must
compete
in a
competitive

heighten the likelihood
of
lower audit quality. The power-conflicts explanation leads to
the
expectation that
threats to
audit quality
increase
with the
size
and financial
health
of the client.
H3: Audit
quality
is
negatively
related to
the size and financial health of the
client,
the
ISD.
The power of
the auditor increases
when
there
is less
room
for
judgment

QCR programs
commenced
and, starting
in
1987,
the results
of those
reviews became
public.
The auditor's
ability
to
withstand
client
pressure
is
dependent
on the economics
of
the contract and
certain
environmental
and behavioral
features, including (1)
the
state
of
professional ethics, (2)
the
probability

professional
norms.9
The auditor's
7 Possible
third parties
the client seeks
to influence
include potential
investors,
creditors, suppliers,
and
government
oversight
agencies.
Both private
and
public
sector
firms are
interested
in
these third
parties.
8
Nichols
and Price
(1976,
340) use
accounting
for R&D

routine
attestation
area-one
that might
subject
the
auditor
to
client pressure.
9
These
features
help
explain
why
a brand
name
effect
has
been
noticed
in studies
between
auditor
size
groups.
Within
a homogeneous
size
group,

large firms
for
clients
may
be as great
as com-
petition
among
small, independent
CPA firms"
(1974,
716).
Furthermore,
many
of these
features
are
interre-
lated
with
the
technical
capabilities
of
the auditor.
For
instance,
an
auditor
who

compromise
professional
standards
is
enhanced when these features
are
present.
Conversely,
as these features
are
diminished
or
absent,
the
auditor
is
more vulnerable to
pressure
from the
client.
Among
these
features, two are of
particular
interest
because
they
have
been
adopted

CPAs'
compliance with
professional
norms
is
likely
to increase the
auditor's
power
to
withstand client
pressures.
Since initial
reports
from
QCR
programs
report
both
substantial
problems and
sanctions for
poor
audit
quality,
auditors were
more
likely to
benefit
from

knows that his
or
her
work will
be
subject to
review
by
third
parties
and
that
sanctions
for
poor
quality
work will
be
applied.
II.
Empirical
Method
Audit
Quality
Model
Audit
quality
differences within
a
pooled

TIME
+
lo3In
(HOURS)
+
e
where:
In
(QUALITY)=
natural
log
of the
weighted
quality
metric
based on
the
QCR
letters
of
findings.10
Reputation
effects:
TENURE=
number
of
years
the
auditor
has

percentage
of new
school
board
members
elected
in
the
last
two
annual
elections in
an
ISD;
In
(SIZE)=
natural
log of
average
daily
student
attendance
for the
ISD;
'?
The
natural
log
of
QUALITY was

nonrandom
patterns
in
plots
of the
residual
against
the
predicted
value
when
QUALITY
(untransformed)
is
used
as
the
dependent
variable.
After
transformation,
the
Kolmogorov
test
fails
to
reject
the
normality
assumption

dummy
variable;
a 1 indicates
1987 or 1988
financial
statements.
Other
variables:
REPORT=
a dummy
variable;
a
1
indicates
that
the
auditor
has
identified
material
weaknesses
in internal
control
or
material
instances
of noncompliance
with laws and
regulations;
TIME=

120
days;
in(HOURS)=natural
log
of the
actual
audit
hours
accumulated
by
the
auditor.
QCR
Results
and
Audit
Quality
Metric
TEA begins
with
the
presumption
that
the
auditor
conducts
a quality
audit
in
accordance

a
clean
review
with
no recommendations
for
improvement,"
(2) a
nonreferred
audit
listing
deficiencies
the
auditor
should
correct
in
future
audits,
and
(3)
a referred
audit
accompanied
by
a list
of
deficiencies
causing
the

referred
audit
firm.
A
number
of sanctions
are
possible.
Some
auditors
are
prohibited
from
conducting
ISD
audits
until
certain
continuing
professional
education (CPE)
requirements
are
met,
and
others
have
been
instructed
to

this
study.
QUALITY
measures
poor
quality
as
defined
by
the
auditor's
failure to
comply
with
professional
standards;
high-quality
audits
have low
QUALITY
scores.
The advantage
of this
metric
is
that
it
reflects
the
judgment

same
evidence
to
arrive
at a
quality
measurement
for
the
sample
audits.
A
content
analysis
of
the letters
of
findings
identified
19
categories
of
audit
deficiencies.
The
director
of
audits
ranked
the

Each
letter
was
coded
for the
presence
of
each
category
of
deficiency;
a
1
indicating
its
11
Clean
reviews
are
rare;
only
five
of the reviews were clean.
Two were
conducted by large,
national
auditors
and three
by
small

the
board's
periodic
newsletter.
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Deis,
Jr.
and Giroux-Determinants
of Audit Quality
469
Table
1
QCR Coding
and
Weights
Frequency
QCR Findings
Assigned
(Deficiency)
Item:
Weight*
Count
Percent
Internal Control: Major
5
17
7.3
Internal
Control:

Letter
14
36
15.5
No Management
Representation
Letter
6
33
14.2
Working
Papers:
Major
2
7
3.0
Working
Papers:
Minor
17
71
30.6
Audit
Program:
Major
1
21
9.1
Audit Program:
Minor

80
34.5
Errors
in
Audit
Reports
11
26
11.2
Ethics
Violations
9
3
1.3
*
SOURCE:
Director
of
Audits,
TEA.
1
=most important
deficiency
area;
19=least
important
deficiency
area.
presence,
0

internal
control
deficiencies add
more
to
QUALITY
(1/
5=0.20)
than
minor
internal
control
deficiencies
(1 /
18
=
0.056).
QUALITY
averages
0.558 and
ranges
from
0.00
(a
clean
review) to
3.068
(many
defi-
ciencies

for
nonreferred
audits
(from
0.00
to 1.107)
overlaps
with
the
range
for referred
audits
(from
0.563
to 3.068)
and indicates
that
additional
criteria
outside the metric
influenced
the
referral
decision
(e.g.,
the
cooperative
attitude
of the
auditor

focus
on variations
in
QUALITY
without
attempting
further
modeling
of the
regulator's
decision-making
process.
"
Two other quality
metrics
were evaluated:
(1) a simple additive measure summing the number
of
the
19
audit deficiency
areas
present and
(2) doubling
the weights of "major" deficiency areas. Both
of these
quality
measures
are correlated
with QUALITY

The
Accounting
Review,
July
1992
Auditor-Reputation
Effects
As auditor
tenure (TENURE)
increases, audit
quality is expected
to decrease
(higher QUALITY
score). In contrast,
improved audit
quality (lower
QUALITY score) is
expected with
increases in the
number of ISD
audits conducted
by the audit firm
(CLIENTS).
Banker et
al. (1989)
indicate that state oversight greatly
affects ISD
financial
reporting practices.
Texas ISDs,

The
importance
of the service
rendered depends
on the nature
of the problem and
who
will
benefit from the service
(Goldman and
Barlev 1974, 711).
When audit reports
benefit
a
third
party
more than
management,
the auditing profession
lacks power and is
vulnerable
to pressure from the
client to resolve conflicts
in its favor.
Audit firms can
decrease the likelihood of
succumbing
to
client
pressures by

evidence of a
commitment to
maintain
professional
standards,
to interact with
peers
within the
profession, and
to
internalize
professional
norms,
all
of
which
are
likely
to
help
the
auditor to
resist
pressures
from
the
client
to deviate from
professional
standards

increase administrators'
incentives to obtain
an
acceptable
audit
report. Parents,
teachers,
and
school board
trustees tend to focus
more on
educational
issues
than
on
financial
reporting
issues
(Banker
et
al.
1989).
Nonetheless,
the
board
has
the
authority
to
appoint

Barlev
1974, 708).
Furthermore,
the
actions
of the auditor
may
be
monitored
less
by
an
inexperienced
board than
by
an
experienced
board,
thereby
allowing
the auditor
more freedom
in the choice
of
quality.
A
higher
percentage
of
board

suggest
that as
client
size
(DeAngelo
1981b)
and
financial health
(Knapp 1985)
increase,
so does
the
perception
that
clients can
obtain
preferred
outcomes
in
an audit
conflict.
Audit
conflict, however,
does not
always
lead
to audit
failure.
Nor
should

Deis,
Jr.
and
Giroux-Determinants
of
Audit
Quality
471
in its favor. Faced
with such
a prospect, the auditor may seek to avoid
conflicts
altogether by conducting
a lower
quality
audit.
Average
student enrollment
proxies
for
client
size
(SIZE) and
assessed
property
values
per
student
proxies
for financial

perception
that
the
profession was vigorously enforcing professional
standards
was
not
common
until
1987 when TEA publicized its results (TSBPA 1987)
and an
AICPA task force
issued
a
report
on the
quality
of audits of
governmental
units
(AICPA 1987).
These
reports
were
indicators for CPAs that a vigorous enforcement program was
in
place,
with sanctions
for violations
in

re-
ported breach
in
the accounting system (REPORT)
is
a de
facto
component
of audit
quality
in
DeAngelo's definition. Auditors
will
report
a breach
only
if
there
is
sufficient
evidence to document the problem conclusively. Whenever the auditor reports
material
weaknesses
in
internal control, noncompliance with
laws
and regulations,
or issues a
qualified opinion, fewer audit deficiencies (lower QUALITY score)
are

The
audit division of the TEA conducted 308 QCRs over a five-year
period
(1984-89) on CPA audits of Texas
ISDs
in six fiscal years (1983-88).1s
Pilot tests,
14
On
average,
more than half
of each ISD's
revenues
is
generated
from local
property
taxes. The
disparity
between
ISDs
has been a
frequent
source
of
conflict between ISD and
TEA officals and
has been
the basis
for

(1971)
and
Edgewood v.
Kirby et
a].
(1987)
identify
individual
ISD
assessed
property
values
as
sources of wealth
causing
disparities
in
financial
capabilities
across
districts.
ISDs
have
few
sources of
revenues,
with
local
property
taxes

ISD
financial
reporting
practices
(Banker
et al.
1989).
15
TEA is the
noted
oversight
agency for
Texas
ISDs.
Federal
agencies
usually
review
TEA
files
and do
not
have a
QCR
program
of
their
own to
review
CPA

The
Accounting
Review,
July
1992
personnel stability, and
standardized checklists
account for the consistency
in the
conduct of the QCRs
over this time.16 Nonetheless,
58 QCRs from 1983
and 1984 are
omitted because TEA's
review questionnaire
did not gather audit
fee and hour
information. Eight repeat
QCRs are omitted to
prevent those audit firms
from being
overrepresented in the
sample. Ten QCRs of audits
by Big Eight and national
(second-
tier) audit firms, and
audits of regional service centers are also eliminated. Audits by
large CPA firms were
eliminated for a couple
of reasons: (1) there were

from TEA files. Separate
files on each
QCR provide audit
hours, auditor tenure, AICPA
Peer Review Section
membership,
and
QCR result information.
TEA electronic database
files provide the
number of ISD
clients for each audit
firm, average daily student
attendance in the ISDs,
and various
financial wealth measures.
From the annual
financial statements
we determine
whether
the auditor
reports
a
breach
in
the
accounting system
and the report date.
Board turnover
is

the
dependent
and
explanatory
variables
in
the model.
The
statistics
are
reported
for
the total
sample (TS),
for 32 referred audits
(R),
and
for
200 nonreferred
audits
(NR).
Univariate
tests
of
referred audits, compared
with nonreferred
audits,
indicate lower
audit
qutility (p=

16
The
stability
of
the TEA
staff
during
the
sample period
reduces
potential
noise from
changes
in field
auditors and decision
makers. There were no
significant
changes
in
personnel during
the
sample period,
and
both
the head
of the
QCR
section
and
the

a national
CPA firm.
The
checklist
changed very
little over the
sample period,
with
most
of
the changes
related to
collecting
audit fees
and
hours
after
an association
between these two
factors and
quality
became
apparent. Although
there
were occasional
changes
in field
auditors
(who usually
worked

the
decision-making process.
"
QCRs
were
conducted on
audits
performed by
four
large
firms: Deloitte
Haskins
&
Sells,
Grant
Thornton,
Peat
Marwick
& Main,
and
Coopers
&
Lybrand.
Besides the
small
frequency
of
QCRs
on
large

All use subject to JSTOR Terms and Conditions
Deis,
Jr.
and
Giroux-Determinants
of
Audit
Quality
473
Table
2
Descriptive
Statistics
Variable:
Mean
t-statistics
(Source)
Freq:
0 / 1
Range
&
Chi-square
Quality
TS: .558
0-3.068
12.78**
(QCR
Files)
NR:
.349

9.68**
(QCR
Files)
NR:
152/48
R:
32
/0
Board
Turnover
TS:
39.0 0-100
-1.08
(%)
last
2
years
NR:
39.7
0-100
(TEA
Records)
R:
34.8
0-85.7
Size
(student
enrollments)
TS:
3615

TS:
117/115
2.16
(QCR
Files)
NR:
97/103
R:
20/12
Report
(Breaches
reported)
TS:
169/63
2.50
(Audit
Reports)
NR:
142/58
R:
27/5
Time (%
of
120
TS:
63.2
15-161
1.06
day
reporting period

Audits
(32). The
t-tests
and
chi-
square
tests
are
based
on
audits
classified
by
referral
status
(referred:
32 /
nonreferred:
200).
Chi-square
test
results are
reported
for
peer
review
member,
year,
and
reported

information
loss,
however,
in
reducing
audit
quality to
an
ordinal
scale
based
on
the
referral
decision.
The
multivariate
model is
used
to
further
explicate
variations
in
audit
quality by
using
QUALITY
as
the

to produce problems in interpreting the
re-
gression results since all the
VIF
for the
explanatory variables are below 2.0, averaging
1.25 and ranging from 1.08 to 1.87. Belsley
et al. (1980, 157) suggest a threshold of
15 or
30,
below
which a
condition
index can be considered too weak for further
consideration. The condition indexes
for this model averaged 1.53 and ranged
from
1.00 to 2.43. A scatter plot of the residual
terms against the predicted value
for
QUALITY
from the
regression model
helped
in
evaluating heteroscedasticity; the
plot
depicts
a cloudlike
pattern

(F= 1.37, p
>
0.10).
The
Glejser
test also confirms that
heteroscedasticity
is
not
a
problem (adjusted R2=0.0006).19
The
Kolmogorov-Smirov goodness-of-fit
test for
normality
of the
regression
model
residuals failed
to
reject
the
assumption
of
normality
at
the
0.10 level. A
t-test
and

4
presents regression
results for
the
model,
with
QUALITY
as
the
dependent
variable.
All
of the
explanatory
variables, except YEAR, REPORT,
and
BOARD,
are
sig-
nificant
at the
0.10
level
or
better
in
the
expected
relation to audit
quality (QUALITY).

firm,
audit
firm
resources
(e.g.,
firm
library
and
supervisory capability), professionalism,
and work load.
Many
of these features
pertain
to
the technical
capabilities
of
the
audit
team
and seem
appropriate
avenues for future
research.
The results
support
the
reputation-effects
explanation (the
first and second

In the
Gleiser
test
(Gujarati
1978,
204-5),
the
absolute
values
of the
regression
model
residuals
become
the
dependent
variable
in
a new
regression
model
retaining
all
of the
independent
variables used
in the
original
model.
Heteroscedasticity

CPAs
who
voluntarily
participated
in
the AICPA's
peer
review
program.
These
audits
have the
highest
values
of
QUALITY;
hence,
it is
not surprising
that
PEER
is
in some
way
related
to
the
residuals.
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All use subject to JSTOR Terms and Conditions

~~ Z Co Cl N ~~~~~~~~ Co CoO
Cl~~co
*-
U4
C'-6*
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All use subject to JSTOR Terms and Conditions
476
The
Accounting
Review,
July
1992
Table 4
Regression Results
for Audit
Quality
Predicted
Description
Sign
Coefficient t-statistic
Intercept
-1.140
-1.014
Auditor Tenure
+
0.016 2.612***
(TENURE)
Number
of

Per Student
+
0.113
1.484*
(WEALTH)
0
/
1
=
Report Year 1987
or Later
-
-0.024 -0.226
(YEAR)
0/1
=Auditor Reports
Breach
-
-0.102
-0.851
(REPORT)
%
of
120 Day
Audit
Period
Used
+
0.645
2.689***

/3oIn
(HOURS).
The
dependent
variable
is the natural
log
of
weighted quality
score.
(High
values
of
QUALITY
indicate
low
quality
audit work.)
The F-statistic
for model: 7.116
(p=0.0001);
R2:
0.24,
adjusted
R2:
0.21.
*
Significant
at 0.10
(one-tailed

result,
however, is
confounded
between the auditor's
concern
for reputation
and
improved
technical capabilities
as a
result of
industry expertise.
The
results also support
research hypotheses
H3
and
H4 based
on
the
power
conflict explanation
of
audit quality.
Larger (SIZE:
p
=
0.05),
financially
healthy

although
it
is not
statistically
significant.
Audit firms that
are members
of
the
AICPA's
Peer
Review
Section
(PEER)
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Deis,
Jr.
and
Giroux-Determinants
of
Audit
Quality
477
conduct
higher quality
audits
(p
= 0.0001). During
the

in
the model.2"
If
QCR
programs
affect
audit
quality,
it
may
be more
by
eliminating incompetence
than
by
encouraging
improved audit approaches.
Therefore
it may take
time for
improvements
in audit
quality
to occur as a result of
QCR
programs.
Three other
variables
suggested
by prior

IV.
Conclusions
A
QCR
program is
one approach
regulators
have chosen
to improve audit
quality.
The early
results of these
programs
indicated that
audit quality
was lacking
for
a
large
percentage
of governmental
audits. This study
tests
some factors that
have
been
suggested
in
the literature
as

ability to
obtain favorable
results,
but the audit
firm's commitment
to
professional
standards
helps to constrain
client
power (Goldman
and Barlev
1974).
That is, the
results support
both explanations
of
audit quality
found in the
literature,
which suggests
that audit
quality is
a complex issue.
Although
past studies
demonstrate
that brand name is a useful surrogate
for quality
differences among

hours seems
to be an
acceptable
surrogate
for audit quality
differences
among audit
firms of similar
size when
a direct
measure
of audit quality
is unavailable.
Interpretation of the
results of this
study needs
to be tempered
by the
recognition
that
the evidence pertains
to one type
of governmental
unit
(ISDs) in a
single state
(Texas).
Hence, the generalizability
of the results
may be limited.

importance
placed on
education in
governmental
auditing (AICPA
1987),
it might be
useful for future
research
to investigate
the effects
of variations
in technical
capabilities
on audit quality.
Moreover,
the interpretation
of some
variables,
such as the
20
GAO established
mandatory peer
review
requirements
after the time period
of this study.
21
A
better test of this

according
to
professional
guidelines
because
of
a
willful
decision
or
because
of lack of
knowl-
edge?
In
either
case, the result is
the
same-a
professional
standard
is
violated.
Future
research
may
attempt to
isolate
attributes
of

and the
ability
to maintain
professional
standards
when
faced with
competitive
pressures).
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