The Consequences of Providing Lower Quality Audits at the Engagement Partner Level

Journal of International Accounting Research (Forthcoming)

46 Pages Posted: 1 Feb 2015 Last revised: 7 Mar 2019

See all articles by Wuchun Chi

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Timothy A. Seidel

Brigham Young University

Date Written: January 2019

Abstract

Using data from Taiwan, where a long history of engagement partner performance is available, we examine the reputational consequences that engagement partners suffer for having a recent history of past audit failures. We find that when an engagement partner’s recent history of poor audit quality is observable to audit clients, they are more likely to lose clients and are less likely to be reassigned to serve other clients of the audit firm over the next five years. We also find that these engagement partners are more likely to stop serving as engagement partners in the next five years, and those who remain in client service experience a re-allocation of assignments (both as a lead engagement partner and as a concurring (second) partner). Additionally, the clients that these partners continue to serve exhibit increased risk. Overall, our findings suggest that an engagement partner’s prior audit quality influences clients’ and audit firms’ engagement partner selection. The results suggest that audit clients can obtain valuable information from partner name disclosures and that audit firms signal a commitment to quality by managing engagement partner assignments.

Keywords: engagement partners, reputational consequences, restatements

JEL Classification: M, M41

Suggested Citation

Chi, Wuchun and Lisic, Ling Lei and Myers, Linda A. and Pevzner, Mikhail and Seidel, Timothy A., The Consequences of Providing Lower Quality Audits at the Engagement Partner Level (January 2019). Journal of International Accounting Research (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2558481 or http://dx.doi.org/10.2139/ssrn.2558481

Wuchun Chi

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan 116, Taipei
Taiwan
886-2-29393091-81031 (Phone)
886-2-29387113 (Fax)

HOME PAGE: http://www3.nccu.edu.tw/~wchi/

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Mikhail Pevzner

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Timothy A. Seidel

Brigham Young University ( email )

Provo, UT 84602
United States

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