Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects

Arthur, Neal; Endrawes, Medhat; Ho, Shawn

doi:10.1111/auar.12150

Cited by 16 publications

(8 citation statements)

References 73 publications

(110 reference statements)

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“…Cano‐Rodriguez () finds that a firm's conservatism is associated with audit switch type, more specifically with Big 4/non‐Big 4 auditor switches. This evidence is consistent with Arthur et al.’s () study showing that audit partner rotation can enhance audit quality but only when both the incoming audit partner and the audit firm are industry specialists. Therefore, overall, we expect MAFR's negative effect on audit quality can be mitigated by Big 4 auditor supervision.…”

Section: Previous Literature and Hypothesessupporting

confidence: 90%

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Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea

Mali

Lim

2017

Australian Accounting Review

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In this paper, we take advantage of Korea's unique experiment with mandatory audit firm rotation (MAFR) and mandatory audit partner rotation (MAPR) to ascertain their influence on audit quality, proxied by conditional conservatism. Overall, we find that the implementation of MAFR did not have the desired effect. Firms that adopted MAFR demonstrate higher levels of conservatism in previous periods under MAPR (or compared to voluntary adopters). Furthermore, we find that audit tenure increases conservatism levels consistent with the auditor expertise hypothesis. However, whilst evidence suggests MAFR decreases audit quality on the whole, we find that firms that switch from non-Big 4 to Big 4 auditors demonstrate higher conservatism because Big 4 auditors are more likely to demand conservative accounting practices, consistent with Big 4 audit firm knowledge superiority. Overall, the results suggest that MAFR's negative effect on audit quality can be mitigated by Big 4 auditor supervision.

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Section: Previous Literature and Hypothesessupporting

confidence: 90%

“…For instance, Arthur et al. () suggest auditor rotation can enhance audit quality but only when both the incoming audit partner and the audit firm are industry specialists. Bell et al.…”

Section: Previous Literature and Hypothesesmentioning

confidence: 99%

Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea

Mali

Lim

2017

Australian Accounting Review

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“…Spesialisasi industri yaitu klien dengan industri yang sama sebagian besar di audit oleh KAP atau auditor yang sama. Dikatakan bahwa spesialisasi industri memiliki lebih banyak pengetahuan terkait industri tertentu, mampu menilai risiko audit, dan dapat mendeteksi kesalahan (Athur, 2017). Solomon et al (1999) menyebutkan auditor spesilias melakukan kesalahan lebih sedikit daripada non spesialis.…”

Section: Pendahuluanunclassified

Pengaruh Rotasi Audit, Spesialisasi Industri KAP, dan Client Importance Terhadap Kualitas Audit (Studi dengan Pendekatan Earning Surprise Benchmark)

Suciana¹,

Setiawan²

2018

WRA

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This research was aimed to examine empirically the effect of several factors to audit quality. These factors are Audit Rotation, Audit Firm Specialization and Client Importance. The population that will be used in this research are company listed in Indonesia Stock Exchange. This study uses sampel of 85 manufacturing companies listed in Indonesia Stock Exchange in the period 2015-2017. In this study, audit quality is measured by earning surprise benchmark. The method used was purposive sampling. The method of data analysis in this study use logistic regression with SPPS version 23. The results of this prove that (1) audit rotation is not proven to have an impact on audit quality, where sig value 0,915 > 𝛼 0,05 which means H1 is rejected (2) audit firm specialization is proven to have an impact on audit quality, where sig value 0,04 < 𝛼 0,05 which means H2 is accepted (3) client importance is not proven to have an impact on audit quality, where sig value 0,809 > 𝛼 0,05 which means H3 is rejected. The amount of Adjusted R is 0.036 gives the sense that rate is 3,6% of level audit quality can be explained by independent variables while 96.4% can be explained by the other independent variabels that are not tested in this study.Keywords: Audit Rotation, Audit Firm Specialization, Client Importance, Audit Quality

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“…The chAF variable is a dummy variable with a value of one for companies that changed auditors and zero otherwise. A change of auditor may affect audit quality (Lee et al 2013;Arthur et al 2017). DeFond and Subramanyam (1998) argue that managers of companies that change auditors may negotiate with the auditor, and the discretionary accruals of companies that change auditors are higher than those of companies that do not.…”

Section: Methodology and Definition Of Variablesmentioning

confidence: 99%

“…; Arthur et al. ). DeFond and Subramanyam () argue that managers of companies that change auditors may negotiate with the auditor, and the discretionary accruals of companies that change auditors are higher than those of companies that do not.…”

Section: Data and Research Designmentioning

confidence: 99%

Non‐audit Services and Auditor Independence Depending on Client Performance

Kang

Hwang

Hur

2018

Australian Accounting Review

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We posit that the effect of non‐audit fees on auditor independence in Korea is based on audit client performance. Further, we suggest that an audit client with low performance has an incentive to purchase non‐audit services (NAS) from an incumbent auditor to facilitate earnings management and steer accounting practices in a preferred direction. We find evidence that as non‐audit fees in Korea increase, auditor independence is reduced only for low‐performing audit clients. Thus, unconditional prohibition of NAS seems unnecessary. Regulators and policymakers should examine the motivation for purchasing NAS, particularly among audit clients with poor performance.

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Impact of Partner Change on Audit Quality: An Analysis of Partner and Firm Specialisation Effects

Cited by 16 publications

References 73 publications

Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea

Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea

Pengaruh Rotasi Audit, Spesialisasi Industri KAP, dan Client Importance Terhadap Kualitas Audit (Studi dengan Pendekatan Earning Surprise Benchmark)

Non‐audit Services and Auditor Independence Depending on Client Performance

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