Title
Does the identity of engagement partners matter? An analysis of audit partner reporting decisions
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Vancouver, B.C. ,
Subject
Economics
Source (journal)
Contemporary accounting research. - Vancouver, B.C., 1984, currens
Volume/pages
32(2015) :4 , p. 1443-1478
ISSN
0823-9150
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Abstract
This study examines the persistence and economic consequences of variations in reporting style across audit partners in individual engagements. Our results show that both aggressive and conservative audit reporting, measured by the pattern of prior Type 2 and Type 1 audit reporting error rates in auditor-specific clienteles, persist over time and extend to other clients of the same partner. Analyses of abnormal accruals and persistence of client firms accrual estimates corroborate this finding, and hold both for private and publicly listed companies. Further, our results also show that the market penalizes client firms susceptible to aggressive audit partner reporting decisions. In particular, we find that our proxies for aggressive audit reporting are related to higher interest rates, worse credit ratings and less favorable forecasts of insolvency for private client companies, and a lower Tobin's Q for publicly listed client companies. Collectively, these results imply that audit partner aggressive or conservative reporting is a systematic audit partner attribute and not randomly distributed across engagements.
E-info
https://repository.uantwerpen.be/docman/iruaauth/7e8f61/130712.pdf