Audit Partner Selection

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 18: Auditor Rotation

Abstract

When engaging a new lead audit partner during audit partner rotation, client executives and audit committees often choose among multiple audit partner candidates from the incumbent audit firm. This audit partner selection process may engender audit quality problems when clients favor less rigorous audit partners. This manuscript reports the results of two experiments examining audit partner selection in the context of mandatory audit partner rotation. Results of Experiment 1 indicate that, compared to executives who have conservative accounting preferences, executives who have aggressive accounting preferences more strongly favor selecting less rigorous audit partners over more rigorous audit partners. Further, strong audit committee oversight of audit partner selection leads executives to rate rigorous audit partners more favorably. However, even under strong audit committee oversight, executives who have aggressive accounting preferences strongly support the selection of less rigorous audit partners. Results of Experiment 2 indicate that audit committee members’ selection decisions are influenced by executives’ audit partner recommendations and that more rigorous audit partners are only likely to be selected when executives specifically recommend them. Taken together, these results suggest that audit partners who provide the most effective audits are least likely to be selected precisely when higher-quality auditing is needed most.

Author

• Joel Owens, University of Nebraska-Lincoln