Capital Market Consequences of Audit Partner Quality

Aobdia, Daniel; Lin, Chan Jane; Petacchi, Reining

doi:10.2308/accr-51054

Cited by 194 publications

(113 citation statements)

References 56 publications

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“…When at least two BSA members are from the same firm, the BSA operates in a fashion similar to other international joint audit settings: (i) Taiwan (Aobdia et al. ; Chin and Chi ), where two auditors from the same firm must sign the audit report; and (ii) Finland and Sweden (Ittonen and Trønnes ; Karjalainen ), where two partners from the same audit firm can sign audit reports.…”

Section: Institutional Settingmentioning

confidence: 99%

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Bianchi

2017

Contemporary Accting Res

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This study examines the effect of auditors’ collaboration in joint audit engagements on knowledge transfer, auditor expertise, and audit outcomes. I employ a unique sample of Italian private companies whose financial statements are jointly audited by three individual auditors and use measures from the network literature to capture the intensity of interactions between these auditors. I find a positive association between several audit quality proxies and auditors’ collaboration in multiple joint engagements. My results suggest that auditors develop knowledge and contacts through collaboration which potentially leads to higher audit quality. Overall, my findings suggest that joint engagements facilitate knowledge transfer and increase auditor expertise.

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Section: Institutional Settingmentioning

confidence: 99%

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Bianchi

2017

Contemporary Accting Res

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“… This same approach could also help validate construct validity for the abnormal accruals measure used by KVZ and could be applied by others who also use abnormal accruals, including Carcello and Li () (U.K.) and Aobdia, Lin, and Petacchi () (Taiwan) that are referenced in PCAOB Release 2013‐009 (2013) and Doty (2014). …”

mentioning

confidence: 97%

Discussion of “Does the Identity of Engagement Partner Matter? An Analysis of Audit Partner Reporting Decisions”

Kinney

2015

Contemporary Accting Res

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The authors of this provocative study apply commonly used audit quality surrogate measures to a large and unique set of financial and other data on statutory audits of small private companies in Sweden. The paper has received unparalleled attention by the financial press and the PCAOB for its presumed support for regulatory intervention in standards for U.S. public company audits. In this Discussant Comment, I review the paper's content, analyze its predictive validity, and discuss its multiple implications plus, following Conference instructions, I provide constructive suggestions for improvements. Based on predictive validity analysis, I conclude that engagement partner assignment strategy is an important and acknowledged omitted variable that affects the study's internal validity via both the independent variable (partner's prior performance measure) and the dependent variable (borrower's cost of debt capital). The omission also affects construct validities and, if audit firms are applying a plausible assignment strategy, then interpretation of the study's main results would be reversed. Finally, the lack of a standards intervention noted by the authors and the extreme size and other differences between audits of Swedish private companies and U.S. public companies impair external validity and generalization to the U.S. intervention. As to improvements, I suggest that the authors (i) ask Swedish lenders to validate their presumed use of partner performance ratings in determining a borrower's interest rate, and (ii) ask Swedish Big 4 audit firms to provide a few internal partner performance ratings for comparison with the external performance measures used in the study. This two‐pronged, multimethod approach might confirm or deny critical assumptions underlying the present study and may substantively inform standards setters, evidence‐based standards, and fellow researchers about the validity of commonly applied surrogates for audit quality and the study's stated conclusion.

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“…The researchers suggest that mandatory rotation of engagement partner leads to higher quality audits in the years immediately surrounding rotation. Moreover, Knechel et al (2015) and Aobdia, Lin, and Petacchi (2015) also provide evidence that the EPs are influential to their clients.…”

Section: Introductionmentioning

confidence: 99%

Economic Consequences of Implementing the Engagement Partner: Signature Requirement in the UK

Liu¹

2017

IBR

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This paper examines whether and the extent to which requiring the audit engagement partner (EP) signature influences on information asymmetry, analysts' forecast errors, and forecast dispersion. I predict and find that, ceteris paribus, there is a significant decline in information asymmetry, analysts' forecast errors and forecast dispersion from the pre-to post-EP signature period in the UK over both of short-term (i.e., 2008-2010) and long-term (i.e., 2004-2014). These findings hold when using a control sample approach, indicating that my results are not likely due to the effect of concurrent events and correlated omitted variables. These findings suggest that implementing the EP signature requirement benefits analysts forecasts over a short-and long-term.

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Capital Market Consequences of Audit Partner Quality

Cited by 194 publications

References 56 publications

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Discussion of “Does the Identity of Engagement Partner Matter? An Analysis of Audit Partner Reporting Decisions”

Economic Consequences of Implementing the Engagement Partner: Signature Requirement in the UK

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