Audit Partner-Client Strategic Alignment

• In Event: Auditor-Client (Mis)Alignments

Abstract

We provide evidence on audit partner—client strategic alignment, and consider how alignment decisions differ depending on whether they occur in connection with new-client acceptance versus existing-client rotation. We define audit partner—client strategic alignment as the degree of similarity between an audit partner’s prior experiences and a prospective client’s characteristics that will affect the audit. We analyze 13,223 firm-year observations from Belgium during the period 2008–2014 in which each client engagement experiences a partner change. We report evidence of strategic alignment whereby audit partners possessing prior experience with clients that are large, financially risky, publicly traded, and requiring IFRS expertise assortatively match via strategic alignment with clients possessing those characteristics or requiring such expertise. Most notably, these associations are more pronounced for audit partner—client strategic alignment involving new-client acceptance as compared to existing-client rotation. Our results therefore provide insights relevant to regulations concerning audit partner and audit firm rotation.

Authors

• Kris Hardies, Universiteit Antwerpen

• Marie-Laure Vandenhaute, Vrije Universiteit Brussel

• Karla M. Zehms, University of Wisconsin-Madison