Impact of Continuous Auditing on Earnings Quality and Audit Fees

Naman Desai, Joshy Jacob and Arindam Tripathy

No WP2016-03-21, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: The use of continuous auditing (CA) has been promoted as a means to improve the governance mechanisms of companies. Prior experimental research also indicates that external auditors tend to rely more and spend relatively lower audit effort on the CA based IA functions compared to traditional periodic audit (PA) based IA functions. If CA could improve corporate governance mechanisms it should result in superior quality of reported earnings. Additionally, if the auditors rely more and spend relatively less effort on CA based IA functions then it should result in lower audit fees for companies employing CA based IA functions. Therefore, we examine the impact of employing CA on the quality of reported earnings as evidenced by the magnitude of discretionary accruals and on the fees charged by the external auditors. The results indicate that there is no significant difference in the level of discretionary accruals between companies employing CA versus PA. However, we find that, the companies employing CA do pay significantly lower audit fees than companies employing PA. This result provides external validity for the results of prior experimental research.

Date: 2016-04-04
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:14481

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