Continuing professional education in non-Big 4 auditors: implications for audit quality

초록

PurposeThe purpose of this study is to examine whether the average continuing professional education (CPE) hours per Certified Public Accountant (CPA) in accounting firms' audit departments affects audit quality. This paper aims to identify which segments of the audit market benefit most from enhanced professional education.Design/methodology/approachThis study analyzes publicly disclosed information on the average CPE hours per CPA in accounting firms' audit departments to examine the role of CPE in audit quality, especially in non-Big 4 auditors. The data on CPE hours is manually collected from auditors' annual transparency reports. The sample consists of 12,884 firm-year observations from both Korean public and private firms between 2017 and 2020.FindingsThis study finds that increasing CPE hours improves audit quality, with the positive effect being more pronounced in firms audited by non-Big 4 auditors. This suggests that non-Big 4 auditors provide higher-quality audits when they acquire more training hours, compared to Big 4 auditors. In addition, the effect of CPE is stronger when non-Big 4 auditors serve private firms and when they are industry non-specialists. The results remain robust across alternative measures of audit quality and CPE, as well as alternative model specifications (e.g. propensity score matching, change analysis and models with auditor or firm fixed effects) to address potential endogeneity concerns.Practical implicationsThe findings that increasing CPE hours enhance the quality of audits conducted by non-Big 4 auditors and industry non-specialists have important implications to regulators, practitioners, and academics. This paper provides evidence on which segments of the audit market benefit most from the competence gained through CPE that is crucial for enhancing audit quality.Originality/valueThis study provides large-sample empirical evidence that directly examines the differing effect of CPE hours on audit quality between Big 4 and non-Big 4 auditors. It also contributes to the literature on the role of CPE by enhancing our understanding of which segments of the audit market benefit most from highly educated auditors.

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