Audit Quality and Partner Wealth

36 Pages Posted: 7 Nov 2015

See all articles by Limei Che

Limei Che

BI Norwegian Business School

John Christian Langli

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics

Date Written: August 10, 2015

Abstract

This paper employs unique and confidential data on audit partners’ wealth and audit related variables for a very large sample of firms in a setting where the auditors’ risk of litigation and loss of reputation is low. We analyze the relationship between audit quality and audit fees at the partner level and test if the strength of this relationship depends on the engagement partners’ private financial position. Overall, we find a negative relationship between audit quality and the fees the engagement partners’ obtain from his or her clients, consistent with partners acquiescing to pressure of clients that are of more economic significance to them. Furthermore, this negative relationship is weaker for rich partners, consistent with partners’ wealth acting as guards against fee dependence. These results are robust to different measures of audit quality and of the economic bonding that fees create between clients and partners. We only find partial evidence that audit quality is adversely affected by the partners’ debt. This paper provides new evidence on how audit quality is associated with the financial position of the engagement partner.

Keywords: partner wealth, audit quality, fee dependence, individual partners, and private firms

Suggested Citation

Che, Limei and Langli, John Christian, Audit Quality and Partner Wealth (August 10, 2015). Available at SSRN: https://ssrn.com/abstract=2686817 or http://dx.doi.org/10.2139/ssrn.2686817

Limei Che (Contact Author)

BI Norwegian Business School ( email )

N-0442
Oslo
Norway

John Christian Langli

BI Norwegian Business School - Department of Accounting, Auditing and Business Analytics ( email )

N-0442 Oslo
Norway

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