Managing the Auditor-Client Relationship Through Audit Partner Transitions: The Experiences of Audit Partners

• In Event: Audit partners, Legal Disputes & Auditor-Client Relationships

Abstract

Partner rotation rules clearly specify engagement partner tenure and cooling-off requirements, but the rules do not specify how firms must coordinate and manage rotations. In fact, firms suggest in their transparency reports that they take steps to minimize disruption when audit partner rotations take place, yet we know very little of what these actions entail. In this study, we conducted semi-structured qualitative interviews with 20 highly experienced U.S. audit partners across five of the largest public accounting firms. We share these partner interviewees’ insights and experiences about how firms manage the auditor-client relationship around these sensitive rotation events. Further, we enrich the major findings of the study by considering how voluntary actions taken to manage the auditor-client relationship map onto the underlying themes of Social Exchange Theory (“SET”). Partner interviewees describe factors weighed when planning internally for upcoming partner rotations (e.g., external pressures from clients and regulators), how firms identify appropriate partner candidates for upcoming rotations, and the procedures that are followed when selecting and preparing the next lead audit partner. In addition, respondents elaborate on firms’ ongoing relationship-managing activities. Our study helps inform audit firms and researchers about the end result of the transition, and provides details about the process by which lead audit partners are selected for rotation onto their clients, an understudied area about which investors have expressed continued interest.

Authors

• Mary Kate Dodgson, University of Massachusetts-Amherst

• Christopher P Agoglia, University of Massachusetts-Amherst

• G. Bradley Bennett, University of Massachusetts-Amherst

• Jeffrey R Cohen, Boston College