An Examination of Audit Quality Associated with New Partners of Continuing Firm Clients in the United States

• In Event: Audit Partners and Audit Quality

Abstract

We examine the relation between audit partner rotation and audit quality among U.S. firms. We use changes in auditor engagement offices of incumbent auditors as a proxy for partner rotation. Our analysis suggests that partner rotation reduces audit quality as indicated by higher absolute discretionary accruals and higher occurrences of future restatements. Additionally, we report evidence suggesting that larger offices mitigate negative effects of partner rotation on audit quality. Our empirical results are robust to controlling for the distance between client headquarters and the auditor’s engagement office, the change in distance between the two after an incumbent auditor office change, and other factors considered in prior research. Our study offers empirical evidence on the ongoing debate among regulators, users, and preparers regarding the effect of mandatory partner rotation on audit quality in the U.S.

Authors

• Julia L Higgs, Florida Atlantic University

• Adam Greiner, University of Denver