The effect of the financial crisis on audit quality: European evidence

Maria I. Kyriakou

International Journal of Accounting & Information Management, 2022, vol. 30, issue 1, 143-158

Abstract: Purpose - This paper aims to examine the impact of the recent financial crisis on audit quality by analysing discretionary accruals. Design/methodology/approach - This study considers a sample of German, French, Italian and Spanish non-financial firms from 2005 to 2013 to investigate the auditor’s independence. It uses a cross-sectional and time-series ordinary least squares regression model to control for other predictors of the auditor’s independence when the financial crisis produces a decrease in audit quality. Findings - The proportion of the non-financial firms having lower audit quality was higher during the financial crisis. In addition, during the crisis auditors were less likely to provide a higher audit quality for these non-financial firms. The level of audit quality returned to normal levels during the post-crisis years when the crisis had ceased. Originality/value - These findings contribute to the literature on the impact of economic and financial changes on audit quality. In addition, this research finds that the Big Four accounting firms provide a higher audit quality in different circumstances from non-Big Four accounting firms, and that audit quality decreased during the crisis and returned to normal in the post-crisis period.

Keywords: Financial crisis; Discretionary accruals; Audit quality; Non-audit fees; M41; M42 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:ijaim-07-2021-0135

DOI: 10.1108/IJAIM-07-2021-0135

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