The association between audit quality and work load compression : An empirical study at grant Thornton (Vietnam) LTD
Abstract
This study investigates whether seasonal workload compression affects audit quality. Using 51 observations (Clients of Grant Thornton Vietnam Ltd.) in 2010, I estimate abnormal accruals (Cross-sectional Modified Jones model) as a proxy for earnings management and audit quality. I find that workload compressed audits display greater magnitudes of abnormal accruals. The results are consistent with the prediction that in the peak seasons when workloads are highly compressed, audit quality is impaired, thus living clients’ corporate managers more freedom to distort financial statements to suit their own purposes. I also find that workload compressed firms with income-increasing (income-decreasing) earnings management are able to book more positive (negative) abnormal accruals. The results of this study have implications for regulation that either compresses the audit process or alternatively spreads auditors’ workload over the course
of the year.