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Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees

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  • ELIZABETH CARSON
  • ROGER SIMNETT
  • ULRIKE THÜRHEIMER
  • ANN VANSTRAELEN

Abstract

We study what determines the involvement of component auditors in multinational enterprise (MNE) group audits and the association with audit quality and audit fees. Using unique Australian disclosures of group audit fees paid to the principal and component auditors, we first document that MNE complexity, MNE internationalization, and auditor characteristics are associated with component auditor involvement, and extent and type of component auditor involvement. Next, we find that involvement of component auditors benefits audit quality as long as the principal auditor conducts a substantial amount of work. Once the involvement of component auditors exceeds a certain level, audit quality decreases. We also document that audit fees are higher in the presence of a component auditor and increase with the extent of involvement, irrespective of component auditor type. Our results contribute to the emerging literature on group audits and provide empirical evidence on regulatory concerns about group audit quality.

Suggested Citation

  • Elizabeth Carson & Roger Simnett & Ulrike Thürheimer & Ann Vanstraelen, 2022. "Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1419-1462, September.
    • Handle: RePEc:bla:joares:v:60:y:2022:i:4:p:1419-1462
    DOI: 10.1111/1475-679X.12418
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    1. Elizabeth Carson & Yi (Dale) Fu & Ulrike Thürheimer & Yang Xu, 2023. "The audit market for listed Australian companies from 2012 to 2018: A state of play," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 524-549, August.

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