Question

Name the three public oversight boards discussed in the chapter. Discuss their similarities and dissimilarities.

What is the theoretical basis for the assumption that Big Four firms provide higher technical audit quality than non-Big Four firms?

Answer 1

Name of the public oversight boards discussed are:-

1).Public Company Accounting Oversight Board (PCAOB)
2).American Institute of Certified Public Accountants (AICPA)

Similarities:-

1). These are related to the accounting/audit industry.

2).These are responsible for guidance to the audit and account field.

Differences:-

1).The PCAOB is a nonprofit corporation and the AICPA is a professional member association

2).The AICPA created standards that guide accounting professionals. The PCAOB has adopted some of the AICPA’s standards and applied them to public accounting firms.

3).The PCAOB deals specifically with the limited scope of public accounting firms and the audits of public companies. The AICPA provides guidance across a spectrum of accounting services that it members perform for a variety of companies.

Audit quality can be defined as relating to the probability that financial statements contain no material omissions or misstatements. Previous research on the subject of audit quality relies on the assumption that large audit firms (Big 4) are homogenous in providing higher audit quality than small audit firms (non-Big 4). However, there is little evidence in extant literature supportive of quality differentials between Big 4 firms, except that the collapse of Arthur Anderson certainly undermines this assertion that large auditors are associated with higher audit quality.