Audit Partner Political Connections and Audit Quality

• In Event: Continental Breakfast - RESEARCH INTERACTION FORUM
  In Roundtable Session: Research Interaction Forum

Abstract

This study provides evidence on the effect of audit partner-level political connections on audit quality. We argue that politically connected audit partners perceive themselves to be at lower risk of enforcement and thus are more likely to acquiesce to clients’ more aggressive accounting choices, resulting in lower audit quality. Consistent with this argument, we find that a subsequent restatement is significantly more likely among audit partners that make political action committee contributions, and that the likelihood of a subsequent restatement increases with the amount of the partners’ contributions. This suggests that politically connected audit partners are associated with lower audit quality. In further support of this argument, we find that audit partners’ contributions are associated with an increased likelihood of income-decreasing and severe restatements. We also examine whether audit partner-level political connections are subsumed by audit office-level political connections and find that partner-level connections have incremental effects on audit quality.

Authors

• Megan Grady, California State University, Fullerton

• William Riccardi, The University at Albany - SUNY