Audit Partner Experiences and Audit Quality

• In Event: Audit Partners

Abstract

Our research examines the association between a partner’s general, industry, and client-specific experiences and audit quality. Based on a proprietary dataset with information collected from working papers over the period 2006 to 2012 from audit engagements in the Netherlands, we focus on two aspects of audit quality: 1) error detection, measured as the likelihood that financial reporting misstatements are detected during the audit engagement and the relative magnitude of the discovered misstatements, and 2) decision making, measured as the likelihood that proposed audit adjustments are waived, the magnitude of the waived proposed audit adjustments, and the likelihood that modified audit opinions are issued. We observe that a long tenure with the client is not associated with misstatement detection, however we find evidence that long tenure improves the ability of industry specialist partners to discover more subjective misstatements. On the decision-making question, we find no evidence that partner tenure affects the decision to waive proposed audit adjustments, the relative magnitude of the proposed audit adjustments and the decision to issue a modified opinion. Next, we find that although industry specialists tend to waive more proposed audit adjustments, they are more likely to detect misstatements, and issue modified opinions. Finally, although partner general experience is negatively associated with detected misstatements in non-Big 4 firms, longer experience does not impair a partner’s ability to detect economically important misstatements when fraud risk is high. General experience however, is positively associated with the likelihood of waiving proposed audit adjustments and negatively associated with the likelihood of issuing modified opinions. Overall, our results have important implications for audit research, and practice.

Authors

• Joost Van Buuren, Nyenrode Business University

• Monika Causholli, University of Kentucky