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Our purpose is to provide empirical evidence of the relations between the quality of governmental audit services and auditor tenure and between quality and fixed fee audit contracts. Audit quality is assessed by Offices of Regional Inspectors General and is based on a review of the audit reports and supporting working papers. We test a model of quality supplied on a sample of audit engagements selected from a population of audited federal assistance programs. The empirical analysis finds that the probability of receiving a substandard audit increases with the length of the auditor‐client relationship. Our analysis finds a positive relation between fixed fee contracts and the incidence of violations of professional standards among audits of federal assistance programs. Additionally, we provide evidence that the incidence of noncom‐pliance with professional standards is significantly lower when the audit contract contains a provision for administrative and/or legal remedies in the event of substandard performance.
Copley et al. (Wed,) studied this question.