Determinants of audit time as a proxy of audit quality

Purpose – The purpose of this paper is to examine auditor‐ and auditee‐related factors that determine audit time, as a proxy of audit quality. The issue of audit quality is of particular significance, while companies in Europe move towards adoption of international accounting standards. Design/methodology/approach – The paper compares the actual audit hours for corporate audits of listed companies with a minimum prescribed by the Supervisory Council of the Hellenic Institute of Certified Auditors (known in Greek with the acronym SOEL). The data used are from the period immediately preceding the implementation of SOEL's minimum audit time criteria. Findings – An “audit effort” ratio calculated as actual hours to minimum hours prescribed is found to bear a positive correlation with company size and gearing, and is also significantly higher for companies audited by large multinational audit firms and for companies that seek equity finance. A proportion of audits is found to have been conducted at less than the prescribed minimum. Research limitations/implications – A number of theoretical and measurement limitations are acknowledged that could further increase the explanatory power of the model. A discussion is also included of the potential effectiveness of regulation as a mechanism for strengthening the agency relationship between management and shareholders. Practical implications – The study should be of assistance to auditors, auditees and regulatory authorities. Originality/value – This paper fills a widely acknowledged gap in the literature regarding the determinants of audit time and the concept of audit quality, particularly in a newly developed capital markets.