Audit Partner Gender and the Reporting of Conservative Earnings

Abstract

This study examines whether the association between auditor gender and accounting conservatism. We predict that clients audited by female partners will exhibit a different degree of accounting conservatism relative to those audited by male partners because of inherent different levels of risk aversion between men and women. The results obtained using the Basu (1997) measure of accounting conservatism indicate that engagements audited by female audit partners are associated with less conservative earnings than those audited by male audit partners in general. Next, these results vary across client importance and litigation risk. In particular, female auditors are less conservative for clients that are less important to the audit firm, but there is no gender difference in conservatism for more important clients. Further, female auditors are less conservative in low litigation risk settings, but there is no gender difference in conservatism when the threat of legal liability is high. These findings are robust to controlling to the inclusion of various control variables and are supported partially using alternative measures of conservatism and after partial control for potential endogeneity in the choice of the gender of an audit partner. Collectively, the results in this study have the potential to provide additional evidence on the important role audit partner characteristics pay in the production of conservative accounting reports.