Engagement Partner Busyness and Audit Quality: Evidence from the U.S.

• In Event: Financial Misconduct and Auditor Busyness

Abstract

Busy engagement partners face significant time allocation issues that can encourage the partner to take shortcuts during the performance of an audit. Engagement partners, however, have strong reputational incentives to provide high-quality audits. As a result, they may rely on the resources of the accounting firm in order to ensure that each client receives a high-quality audit. Individual firms, however, do not provide access to the same level of resources. This could significantly affect the ability of the engagement partner to mitigate any potential negative effects of maintaining a relatively heavy workload. We investigate this possibility using a sample of engagement partners from U.S. accounting firms registered with the PCAOB. Our results are inconclusive when we consider all clients together. When firm size is considered, our results suggest that busy Big 4 engagement partners are able to maintain a level of audit quality that is consistent with other Big 4 engagement partners, while busy non-Big 4 engagement partners are associated with lower audit fees, longer audit delay, a greater propensity to manage earnings, and a greater likelihood of just meeting earnings benchmark targets.

Authors

• Brian Todd Carver, Clemson University

• Carl W. Hollingsworth, Clemson University

• Terry L Neal, University of Tennessee-Knoxville