Investor perceptions of third-party engagement of auditors: An experimental investigation

This paper examines whether investors perceive the engagement of the statutory auditor by a (neutral) third party as an instrument for enhancing audit quality. Despite the ongoing series of accounting scandals and regulators considering the introduction of alternative auditor selection and remuneration models, there is limited evidence on whether this measure enhances perceptions of audit quality. Furthermore, we analyze whether having more financial expertise will moderate the impact of third-party engagement on perceived audit quality. We conducted an experimental study among non-professional investors. Our results show that third-party engagement improves investors’ audit quality perceptions. This finding holds across all levels of investor expertise. Our study contributes to the current debate on strengthening audit quality, as it is the first to examine perceptions of third-party engagement in an experimental setting among non-professional investors.