The Effect of (Non-) Equity Partnership on Audit Quality

• In Event: Break and Research & Education Poster Forum

Abstract

Recent research shows that individual audit engagement partner characteristics explain variation in audit quality. However, the extant literature has not been able to distinguish equity from non-equity partners, although in many countries the signing auditor (i.e., audit engagement partner) can be both an equity partner or a non-equity partner. As non-equity partners might have different economic incentives than equity partners, this study analyzes the effect of (non-)equity partnership on audit quality. To this end, we analyzed going concern opinions (N = 44,549) and total accruals (N = 42,678) from Belgium companies during the period 2008–2014. Audit engagement partner names are publicly disclosed in Belgium and both equity and non-equity partners can sign audit opinions. Our results suggest that audit quality is higher when the signing auditor is an equity partner, as equity partners are more likely than non-equity partners to issue going-concern opinions to their financially distressed clients and are associated with less earnings management.

Authors

• Marie-Laure Vandenhaute, Vrije Universiteit Brussel

• Kris Hardies, Universiteit Antwerpen