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

See all articles by Gerald J. Lobo

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Luc Paugam

HEC Paris, Accounting and Management Control Department

Dana Zhang

University of Houston

Jean-Francois Casta

University Paris-Dauphine - DRM Finance

Date Written: June 19, 2015

Abstract

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

Lobo, Gerald J. and Paugam, Luc and Zhang, Dana and Casta, Jean-Francois, The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests (June 19, 2015). Contemporary Accounting Research, Volume 34, Issue 1, pp.118-153, 2017, Available at SSRN: https://ssrn.com/abstract=2653412 or http://dx.doi.org/10.2139/ssrn.2653412

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Luc Paugam (Contact Author)

HEC Paris, Accounting and Management Control Department ( email )

1 avenue de la libération
Jouy-en-Josas, 78350
France

Dana Zhang

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

Jean-Francois Casta

University Paris-Dauphine - DRM Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75775
France

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