The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests
53 Pages Posted: 1 Sep 2015 Last revised: 1 Jul 2019
Date Written: June 19, 2015
Using a sample of firms from France, where the law requires the use of two auditors, we study the effect of auditor pair composition on audit quality by examining a specific account, goodwill impairment. We document that firms audited by a Big 4-non-Big 4 auditor pair (BS) are more likely to book an impairment and book a larger impairment than firms audited by a Big 4-Big 4 auditor pair (BB) when low performance indicators suggest a greater likelihood of impairment. Moreover, firms audited by a BB pair reduce impairment disclosures when they book impairments, while firms audited by a BS pair do not, suggesting lower transparency for firms audited by a BB pair. Our results inform investors and firms in mandatory joint audit regimes, as well as regulators who are considering requiring joint audits.
Keywords: Joint Audits, Audit Quality, Auditor Independence, Impairment Testing, Conservatism
JEL Classification: K22, G18, M42, M48, C72
Suggested Citation: Suggested Citation