The Informativeness of Audit Partner Reputation: Evidence from Taiwan

• In Event: Partner-Specific Audit Effects

Abstract

Using data from Taiwan, where audit partner names are disclosed on financial statements, we examine whether an audit partner’s reputation, as measured by prior client financial statement restatements, is informative about actual and perceived audit quality. We find that when at least one of an audit partner’s clients restates in the prior year, the likelihood that other clients restate in the current year increases, and that other clients are more likely just meet or beat prior year earnings. and are less likely to receive modified audit opinions in the current year. We also find an audit partner is more likely to lose market share when at least one of his clients restated in the prior year. Our results suggest that audit partner reputation is informative about actual and perceived audit quality, supporting the Public Company Accounting Oversight Board’s proposal to disclose the names of audit partner in the United States.

Authors

• Wuchun Chi, National Chengchi Univ

• Ling Lisic, George Mason University

• Linda Ann Myers, University of Arkansas

• Mikhail Pevzner, George Mason University