The Effects of Audit Partner Pre-Client and Client-Specific Experience on Audit Quality and on Perceptions of Audit Quality
National Chengchi University (NCCU) - Department of Accounting
Linda A. Myers
The University of Tennessee, Knoxville
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy
University of Kentucky - Von Allmen School of Accountancy
August 1, 2016
Based on O’Keefe et al. (1994), which models audit quality as a function of general knowledge, client-specific knowledge, and other factors, we examine the association between audit partner experience and audit quality. We use data from Taiwan, where the names of signing audit partners are disclosed, to determine pre-client experience (a proxy for general knowledge) and client-specific experience (a proxy for client-specific knowledge), and we use discretionary accruals and interest rate spreads to proxy for audit quality and perceptions of audit quality, respectively. We find that audit partner pre-client experience is positively associated with audit quality early in the audit engagement, but not when the audit partner has been with the client for at least 5 years. Moreover, we find that both pre-client and client-specific experience improve creditor perceptions of audit quality. Our findings are important because they provide evidence consistent with the assumption underlying the Public Company Accounting Oversight Board’s decision to require the disclosure of engagement partner names for U.S. audit engagements. They also provide evidence that an incoming audit partner’s pre-client experience cannot completely mitigate the loss of an outgoing audit partner’s client-specific knowledge when partner or audit firm rotation or turnover occurs.
Number of Pages in PDF File: 45
Keywords: Audit Partner Experience, Audit Quality, Discretionary Accruals, Interest Rate Spreads, Auditor Tenure
JEL Classification: M49, M41, M43, M47, G12
Date posted: November 21, 2008 ; Last revised: August 22, 2016
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