Do Accumulated Cooperative Experiences between Audit Partners Affect Audit Quality?

• In Event: Audit Partners and Tone at the Top

Abstract

Drawing on the theory of knowledge sharing and social learning, we use data of public companies from Taiwan where the names of engagement partners are disclosed on the audit report, to investigate whether an engagement partner’s historically accumulated normal cooperative experiences can lead to or are perceived to have better audit quality. Empirical results indicate that although there exists a positive association between an engagement partner’s normal cooperative experiences and our proxies for audit quality (i.e., modified audit opinions, positive values of performance-adjusted discretionary current accruals, and spreads of bank loans), this association manifests only to partners that never cosign audit reports with engagement partners with bad records. We further find this benefit primarily attributes to less experienced partners when they cooperate with engagement partners of more experiences than theirs.

Authors

• Wuchun Chi, National Chengchi University

• Anxuan Xie, National Chengchi University

• Chun-Chan Yu, National Chung Hsing University