Which Audit Input Matters? An Analysis of the Determinants of Audit Quality, Profitability, and Audit Fees Using PCAOB Data

Using proprietary data, we analyze how a variety of audit composition and team characteristics are associated with audit effectiveness and efficiency. We find that more time allocated prior to the final phase of the audit is associated with more effective audits. We also decompose the time allocation and experience characteristics of the core audit engagement team across the following roles: lead partner, engagement quality reviewer, and other experienced team members (comprised of other audit partners, directors, senior managers, and managers). While the lead partner time and experience are not associated with audit effectiveness, we find that more time spent and experience of other experienced team members are associated with more effective audits. Many of the characteristics that improve audit effectiveness do not improve efficiency, but rather are costly to the client, with one exception. Overall, our analysis highlights several cost-benefit tradeoffs to improving audit effectiveness.