Academic journal article International Journal of Management

Organization Type, Professional Training, Manpower and Performance of Audit Firms

Academic journal article International Journal of Management

Organization Type, Professional Training, Manpower and Performance of Audit Firms

Article excerpt

This study investigates the effects of professional training and manpower on performance of audit firm under different organization type. Empirical data are obtained from the 1989-2002 Census Report of Audit Firms in Taiwan. In this study, performance is defined as total revenues deduct total expenditures with partner's salary added back. Total audit firms are divided into three categories in terms of their organization type, i.e. big-sized, medium-sized, and small-sized audit firms. Empirical results from univariate test show that the performance of audit firms with high professional training and high manpower are significantly better than that of audit firms with low professional training and low manpower. In addition, regression results indicate both professional training and manpower have positive effects on performance. In total, results above imply that professional training and manpower make a positive contribution to the operation of audit firm.

1. Introduction

Traditionally, audit firms play an important social role in the knowledge-economy system. In theory, auditing services are demanded to alleviate the situation of information asymmetry between management and investors. In practice, audit firm has provided many assurance services for years, particularly assurances about historical financial statement information. The main assurance services provided is attestation services, including audit of and review of historical financial statement and other attestation services, such as reports on forecasted financial statements and reports on internal control over financial reporting.

Recently, global competition and business internationalization drive companies to pursue new administrative knowledge and information from their long-term partner, audit firm. Under the circumstances, audit firms have expanded their scope of services to provide non-assurance services, such as accounting and bookkeeping services, tax services, and management consulting services. According to Practical Accountant (2001), tax services and management consulting services account for approximately one-half of the total revenue for most audit firms.

Because audit firm plays an important social role, the AICPA and other organizations provide mechanisms to increase the likelihood of appropriate audit quality and professional conduct. These mechanisms include, but not limited to, continuing education requirements, peer review, quality control, and legal liability. Rapid growth of information technology and the bulk of regulations imposed on company make the transaction more complex. Accordingly, company demands more professional advices and assistance. In turn, the depth and width of professional knowledge and skills needed by auditors have increased. For example, many audit firms have also organized along industry specialization lines.

After the Enron disaster, Sarbanes-Oxley Act imposes more regulations on audit firms, not only on services offered, but also on auditor's responsibility. Under the new economy landscape, auditors absorb new idea, communicate knowledge and share experience through professional training to promote competence and to better serve their clients.

Audit firm is an expertise-intensive and labor-intensive service organization. Manpower constitutes the core production input therefore. The staff levels in a typical audit firm include partners, managers, seniors or in-charge auditors, and assistants. The average years of experience for partners, managers, seniors or in-charge auditors, and assistants are over 10 years, 5-10 years, 2-5 years and 0-2 years respectively (Arens et al., 2003). In order to aid auditors in fulfilling their professional responsibilities, AICPA established 10 generally accepted auditing standards. The first general standards is normally interpreted as requiring the auditor to have formal education in auditing and accounting, adequate practical experience for the work being performed, and professional training. …

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