Journal of Business & Economics Research Volume 2, Number 1 81 A Comparative Analysis Of Audit Service Supply Using Desk And Working Paper Reviews Donald R. Deis Jr., University of Missouri-Columbia Anna M. Rose, (Email: aniarose@montana.edu), Montana State University Abstract The Texas Education Agency (TEA) performs extensive reviews of audit working papers for selected Texas school district audits to evaluate the quality of audit services rendered by independent accountants. These reviews are referred to as Quality Control Reviews (QCRs). The TEA also conducts desk reviews of all audited financial statements issued by Texas independent school districts. During the desk review process, the TEA performs a limited check of the accuracy of financial statement amounts, completeness of financial disclosures, and existence of proper audit output. Prior research suggests that desk reviews and quality control reviews both measure audit quality (Colbert and O’Keefe 1995; Copley et al. 1994; Deis and Giroux 1992, 1996; Giroux et al. 1995; O’Keefe and Westort 1992; O’Keefe et al. 1994). The purpose of the paper is to determine if desk reviews capture the same audit quality information as quality control reviews. If so, regulators should focus resources on desk reviews since they are more timely and economical than QCRs. The results of the study, however, indicate that desk reviews and quality control reviews do not measure the same constructs. The findings suggest that desk reviews measure the industry specific knowledge of the auditor, which is only one aspect of audit quality. Moreover, it was observed that some audits passing the desk review were graded low in quality by the working paper review. This finding suggests that low audit quality may be more prevalent than generally suspected and that steps to improve audit quality and auditor credibility are warranted. Introduction A string of recent accounting failures (e.g., Enron, WorldCom, Cendant: Waste Management) has increased the scrutiny of public accounting firms. On December 2, 2001, Enron filed for Chapter 11 bankruptcy without any warnings from its Big 5 auditor, Arthur Andersen. In another failure, Cendant‟s shareholders filed a lawsuit accusing its independent auditor of providing a “clean” audit opinion without gathering adequate documentation and without reviewing company general ledgers (Pachelle and MacDonald 1999). Such instances shake financial statement user faith in the credibility of the auditor and the accounting profession. Based on recent auditing debacles, it is evident that substandard audit reports can be prepared without performing necessary audit procedures. In fact, various audit resources (e.g., sample reports, industry guidelines, reporting software) make it possible to conduct an audit and prepare an audit report with minimal effort. In the private sector, the need for independent measures of audit quality is evident. In an effort to improve audit quality, perhaps the profession can look to solutions developed in the governmental auditing arena. This study investigates two specific audit quality measures used to evaluate the audits of independent school districts. Regulators have used two types of reviews to assess the auditor‟s compliance with GAAS and GAGAS: (1) desk reviews and (2) working paper reviews. Since the two reviews differ in scope and purpose, their relationship and appropriate use is unclear. The purpose of this study is to determine if desk reviews capture the same audit quality information as working paper reviews.