The Effects of Former Audit Partners as Audit Committee Directors on Financial Reporting Quality and Audit Quality

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 7: Audit Committees

Abstract

Since the passage of the Sarbanes-Oxley Act of 2002 (SOX), which greatly increased the demand for accounting and financial reporting expertise on audit committees, the presence of former audit partners on audit committees has more than doubled. As of 2012, former audit partners were found on 25.4 percent of audit committees. I investigate how former audit partners affect financial reporting quality and audit quality post-SOX. Focusing on 2006 – 2012 and using numerous many proxies to capture different aspects of financial reporting quality and audit quality, I examine the association between former audit partner directors and the financial reporting quality and audit quality at the companies where they are directors. Moreover, to examine how independence and expertise influence financial reporting quality and audit quality, I investigate whether this relation differs depending on whether the former audit partner is an alumnus or non-alumnus of the company’s current external auditor. I also compare and contrast the influence of former audit partners to other forms of accounting expertise and non-accounting financial expertise on the audit committee. In general, I do not find that former audit partners or other accounting and financial experts are differentially associated with financial reporting quality during this period.

Author

• Brandon Szerwo, University of Washington