The Effect of Audit Duality on Audit Quality

The Russian regulatory environment offers a unique audit duality situation in which public companies receive two separate financial statement audits by the same audit firm: one based on Russian Accounting Standards (RAS) and the other on International Financial Reporting Standards (IFRS). We assess whether audit duality influences audit quality, measured by modifications to the standard audit report. Using a sample of public Russian companies from 2004 to 2016, we find that audit duality significantly reduces auditors' propensity to modify the audit opinions for both the RAS and IFRS audits as compared to companies that engage a different firm for each audit. This potential reduction in audit quality is mitigated when the company is in a loss position. The presence of Big N dual auditors does not diminish the observed findings and, in fact, appears to translate into lower-quality RAS-based audits of financially distressed companies.