Abstract

http://ssrn.com/abstract=1799681
 


 



What Is the Relationship Between Audit Partner Busyness and Audit Quality?


John Goodwin


Sabanci University

Donghui Wu


The Chinese University of Hong Kong; Center for Institutions and Goverance

May 31, 2014


Abstract:     
Contemporaneous studies generally find a negative relationship between audit partner busyness (APB), measured as the number of clients in an audit partner’s portfolio, and audit quality. Their argument is that a busy partner does not devote sufficient time to properly audit his average client. Contrary to these studies, we argue that when busyness is optimally chosen by the partner, in equilibrium, there is no causal relationship between APB and audit quality. Using Australian data for the 1999–2010 period, we show that APB is not reliably linked to audit quality, consistent with this equilibrium theory. We argue that causality can be ascribed to the APB-audit quality relationship when accounting scandals exogenously shocked the Australian audit market during the 2002–04 period and APB likely deviated from optimum levels. Supporting this disequilibrium view, we find that higher APB reduces a partner’s propensity to issue first-time going concern opinions during this period. Our evidence highlights the importance of the equilibrium condition in testing empirical associations between audit outcomes and endogenous auditor attributes, and shows that the detrimental effect of APB on audit quality is not as pervasive as contemporaneous studies suggest.

Number of Pages in PDF File: 51

Keywords: audit partner busyness, audit quality, audit effort

JEL Classification: M41, M42, M51

working papers series





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Date posted: April 5, 2011 ; Last revised: June 2, 2014

Suggested Citation

Goodwin, John and Wu, Donghui, What Is the Relationship Between Audit Partner Busyness and Audit Quality? (May 31, 2014). Available at SSRN: http://ssrn.com/abstract=1799681 or http://dx.doi.org/10.2139/ssrn.1799681

Contact Information

John Goodwin (Contact Author)
Sabanci University ( email )
Orta Mahalle Üniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey
90 0216 4839675 (Phone)
Donghui Wu
The Chinese University of Hong Kong ( email )
Sha Tin
N.T.
Hong Kong
852-3943 7836 (Phone)
852-2603 5114 (Fax)
HOME PAGE: http://www.bschool.cuhk.edu.hk/index.php/faculty-staff/academic/show-alltest?pid=2&sid=470:
Center for Institutions and Goverance ( email )
Hong Kong
China
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