Audit Partner Industry Experience and Audit Quality

• In Event: 7.01 Audit Staffing Decisions and Audit Quality Audit Quality

Abstract

The recent PCAOB guidelines make it mandatory for listed companies to identify the audit partner in charge of an audit, thus increasing the focus on the role of an individual audit partner in providing a high-quality audit. Motivated by the PCAOB’s commitment to post-implementation review of its regulatory decision-making, this paper assesses the possible benefits of this disclosure requirement. Prior studies employ a market share-based proxy for partner’s expertise which does not accurately capture the incremental experience gained by individual partners who repeatedly audit clients in a particular industry. Using a large dataset of audit partners in India, we employ a new individual partner level measure of audit expertise - number of firm-years audited by the signing partner in a particular industry – and examine its effect on audit quality. Our analyses indicate that greater experience of an audit partner with an industry results in superior audit quality, lower cost of debt and higher earnings response coefficients for the client firms.

Authors

• Naman Desai, University of California, Riverside

• Birendra Kumar Mishra, University of California-Riverside

• Theodore Jaye Mock, University of California-Riverside

• Siddharth Mahendra Purohit, Indian Institute of Management Ahmedabad