Introduction
Despite its importance, audit quality remains notoriously difficult to define and measure—particularly for external stakeholders such as investors, analysts, and audit committees who rely on limited publicly available information. While regulators and audit firms may have access to internal data, such as engagement-level performance metrics, staffing models, and quality control outcomes (referred below as “metrics”), these insights are rarely disclosed in a standardized or transparent manner. As a result, those outside the audit firm face significant challenges in assessing the effectiveness, independence, and rigor of audit engagements.
This article seeks to contribute to this ongoing debate by examining how different stakeholders perceive and evaluate audit quality.
Recent remarks by then-Acting Chair and current Board Member of the Public Company Accounting Oversight Board (PCAOB) George R. Botic highlight the renewed urgency of this issue. In a November 2025 speech, Botic emphasizes that the auditing profession is at a critical inflection point, shaped by transformative developments such as the rapid adoption of artificial intelligence and increasing private equity investment in accounting firms (PCAOB, 2025).Importantly, Botic underscores that audit quality is not a new concern but an enduring challenge that has been approached from multiple perspectives. The absence of a widely accepted and observable measure of audit quality is particularly consequential in today’s environment, where emerging technologies and evolving firm structures may obscure traditional signals of audit effectiveness.
This article seeks to contribute to this ongoing debate by examining how different stakeholders perceive and evaluate audit quality. To do so, we draw on semi-structured interviews with three key participants in the financial reporting ecosystem: an audit committee member, a financial statement preparer at a multinational corporation, and a partner at a wealth management firm (serving as a proxy for the investor perspective).
The audit committee member (AC member) is a former audit partner at a Big Four accounting firm and a recently retired C-suite executive of a Fortune 500 company. They currently serve on the audit committees of several organizations, including two large, publicly listed companies. The financial statement preparer (MNC preparer) is the chief accounting officer and chief compliance officer of a large, multinational, publicly traded company, with over 20 years at their current organization and prior experience as an auditor at a Big Four firm. The investor (WM) is a partner at a wealth management firm with more than 25 years of experience, including roles as a tax practitioner at a Big Four firm and as a controller at a mid-size private equity firm.
Audit Quality Factors
The first part of the interviews focused on gathering insights into the overall state of the external audit function. Specifically, interviewees were asked to share their perceptions regarding the value of the external audit and the key drivers of audit quality—at the firm, office, engagement, and individual partner levels.
All three interviewees agreed that the external audit function remains critical to the efficiency of financial markets and is a value-adding activity. They also concurred that large accounting firms (i.e., the Big Four) have the resources necessary to conduct high-quality audits of large, multinational corporations. However, their views diverged when discussing the specific drivers of audit quality.
The AC member emphasized that audit quality can vary significantly within large firms, often depending on changes in the engagement team—particularly at the manager and partner levels. They stressed the importance of having a partner with expertise, integrity, and courage. According to the AC member, when a partner frequently escalates issues to the firm’s national office, the audit becomes more conservative and less efficient, with the national office effectively taking over. In contrast, when a local partner possesses the expertise and confidence to make key decisions at the engagement level, the audit process tends to be more effective and better focused on high-risk areas. From the client’s perspective, local decision-making is preferred; however, audit firms often defer significant issues to the national office to mitigate the risk of adverse PCAOB inspection findings.
The MNC preparer echoed some of the AC member’s points, particularly regarding the fluctuation in audit quality due to engagement team turnover. Given the complexity of their organization, it takes considerable time for new auditors—especially managers and partners—to fully understand the company, which diminishes audit efficiency and effectiveness. However, the AC member noted that changes in audit personnel or firms can also improve audit quality. They shared that new audit teams often uncover issues overlooked by previous ones—whether due to the previous team’s complacency or their desire to maintain the client relationship. According to this view, a fresh perspective can be beneficial, and it is not necessarily a firm-level change but rather a shift in partner or engagement team that can significantly influence audit quality.
The WM partner evaluates audit quality primarily at the firm level. They rely on the assumption that larger audit firms, subject to PCAOB standards and their own internal quality controls, are inherently capable of delivering high-quality audits. In assessing the audit quality of potential investment companies, the WM partner reviews the audit firm listed on the report and generally places trust in the national firms and select reputable local firms based on personal experience with the local market.
While all the interviewees recognized the importance of audit efficiency in delivering cost-effective audits, they emphasized that auditors—and, crucially, audit committees—must maintain diligence to ensure quality. One interviewee remarked, “The most important thing that an audit committee can do is to focus on the mundane.” The audit committee plays a vital role in overseeing the audit process, acting as a safeguard for audit quality. Another participant noted, “If you do not have diligence in an audit committee, that is when things get out of control. You have to have people willing to be engaged and act as a watchdog.” The overarching insight here is that, regardless of regulatory frameworks, the audit committee and company leadership must actively support and promote audit quality.
Supplementary Audit Quality Issues
Several other important audit quality issues emerged across the interviews. One consistent theme was the existence of an expectation gap between what audits are designed to provide and what market participants and regulators expect. While our interviewees acknowledged that audits offer reasonable—not absolute—assurance, they observed that both investors and regulators often expect more.
Additionally, audit firms have become increasingly rigid, adopting more procedural “check-the-box” approaches to avoid inspection findings. For instance, the MNC preparer shared that their audit team is now required to involve specialists in certain areas. However, these specialists often lack the contextual understanding needed to address their company’s highly specific issues, resulting in inefficiency and frustration. Nonetheless, this allows audit teams to “check the box” in line with national office directives intended to mitigate PCAOB findings.
The AC member added that regulatory intervention has made audits more expensive, more prescriptive, and less focused on meaningful risk areas. Despite increasing regulation and growing market expectations, our interviewees suggest that the interpretative and performance gaps may be widening rather than narrowing.
Our interviewees expressed concern with the increased use of AI in the audit process. Specifically, they fear that the growing use of AI will limit the professional development of auditors while also increasing expectations from investors about the depth of an audit. Furthermore, our interviewees wondered if the variation in firm use of AI would (1) impact audit metrics across firms and (2) be recognized in new quality control standards.
Conclusion
Based on these insights from our interviewees, we offer two key recommendations for audit firms and regulators. First, audit firms should create more opportunities for staff and senior auditors to engage with complex technical issues. Without such exposure, there is a risk that the profession’s overall competency could erode over time. Second, regulators should reconsider both the necessity and content of audit-related metric disclosures. Although we see potential value in the metrics previously proposed, our interviewees found little utility in them. We suggest a more forward-thinking approach—for example, disclosing how AI is used in the audit process. This could include the types of tasks performed by AI, the depth of those tasks (e.g., sample sizes), and any time savings achieved. Such disclosures may offer more meaningful insights for informed users of financial statements and help them better assess AI’s impact on audit quality. We hope readers find value in the candid perspectives shared by our interviewees. Their insights provide a grounded, real-world view of the audit landscape—one that is often underrepresented in academic or regulatory discussions.
ODI Reference: 10.67283/CPAPub-96748753
References
PCAOB. 2025. “The Guardians of the Truth and the Need to Define Audit Quality,” speech by George R. Botic. Baruch College’s 20th Annual Audit Conference, November 20, 2025. https://pcaobus.org/news-events/speeches/speech-detail/the-guardians-of-the-truth-and-the-need-to-define-audit-quality.
