The Association between Audit Manager and Auditor-In-Charge Experience, Effort, and Risk Responsiveness

Abstract

SUMMARY Audit quality is dependent on the experience and effort of the audit team to identify and respond to client risks (risk responsiveness). Central to each team are the core role holders who plan and execute the audit. While many studies treat the partner as the primary core role holder, the manager and auditor-in-charge (AIC) are also important. Using data for engagements from two midtier firms, we analyze the association between the experience and relative effort of the manager and AIC and risk responsiveness. We find a manager's client-specific experience is associated with risk responsiveness for non-listed clients but find no evidence that the general or industry experience of a manager, or the experience of the AIC, is associated with risk responsiveness. The client-specific experience and relative effort of the partner is associated with risk responsiveness. These results suggests that managers can provide an important, albeit limited, contribution to the audit. JEL Classifications: M2. Data Availability: The data were made available to the researchers on the understanding that they will remain confidential.

How do audit team industry and client‐specific experience impact audit effort and audit fees?

“…TEAMINDEXP : The average proportion of time the audit team has spent auditing clients in an industry sector in the current and three prior years calculated as 16 where HRS is audit hours of all team members, i is industry indicator, t is time indicator and HRS t is the sum of HRS it over i (Contessotto et al, 2019). As industry experience is accumulated across several clients, we measure this variable on the percentage of time worked in the industry sector, rather than the number of clients, as auditors spend differing amounts of time on each client.…”

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

“…An external IAF provider with firm‐specific expertise ( OIAFFEX ) is measured by the number of consecutive years the external IAF provider has had a relationship with a given client (Contessotto, Knechel, & Moroney, 2019). As the tenure lengthens, this expertise increases.…”

“…For example, Lai and Liu (2018) argue that client‐specific expertise enhances the auditor's ability to detect and prevent irregularities in financial reports and increase the quality of financial reporting and disclosure. Contessotto, Knechel, and Moroney (2019) report that the auditor's ability to identify and respond to risk is enhanced by client‐specific expertise, which increases with the auditor's tenure. In the context of IAF, Sarens, De Beelde, and Everaert (2009), using qualitative techniques, report that internal auditors with firm‐specific knowledge and expertise contribute to the quality of the internal control environment and the confidence of the audit committee.…”

“…Drawing on the external audit literature (e.g., Balsam, Krishnan, & Yang, 2003; Krishnan, 2003), we identify the industry expertise of external IAF providers by a market‐share approach in which external IAF providers with a majority of IAF industry market share in terms of revenues in each industry and year are considered to have industry expertise. On the other hand, we measure firm‐specific expertise by the number of years an external IAF provider has continuously engaged with the same client, as the longer time of engagement is associated with firm‐specific experience (Contessotto, Knechel, & Moroney, 2019). Using a pooled sample of 928 observations from 2005 to 2017 for firms listed on the Omani capital market, we observe that external IAF providers with industry expertise are positively but insignificantly associated with REM, indicating that they do not contribute to the quality of outsourced IAF.…”

Ego Depletion and Its Effect on Auditors’ Judgment and Decision-Making Quality

“…This testing was aimed to find out whether there was any difference in the JDM quality generated. Contessotto et al (2019) describe the difference in task between partners, managers, and auditors. Whereas partners have limited involvement in daily audit planning and execution as they delegate the task to managers and auditors and they themselves hold the role of authority to make major decisions and focus on liaison with clients, managers have a direct role in selecting the audit team and participate in the making of major decisions throughout the audit process.…”