Differences in CFO and Audit Partner Skill Bargain Power: Impact on Audit Fees and Earnings Quality

• In Event: Auditing

Abstract

In this paper we investigate how Chief Financial Officer (CFO) and Audit Partner (AP) skill bargain power influences the auditee’s earning quality and the cost of the audit service provided. Using a sample of UK listed companies in the period 2009-2015, we measure negotiators’ skill imbalance looking at CFOs and APs educational level, professional experience, and age. We find that higher CFOs power is associated with lower audit fees and higher earnings management. We also find that educational level and professional experience seem to be the most relevant drivers of skill bargain power, compared to age. Our results hold when controlling for CEO power and Audit Committee characteristics.

Authors

• Angela Pettinicchio, Bocconi University

• Mara Cameran, Università Commerciale Luigi Bocconi

• Gabriel Pundrich, Bocconi University