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

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.

Citation

Kyriakou, M.I. (2022), "The effect of the financial crisis on audit quality: European evidence", International Journal of Accounting & Information Management, Vol. 30 No. 1, pp. 143-158. https://doi.org/10.1108/IJAIM-07-2021-0135