Audit Partner Judgement: The Effects of Concurring Reviews, Compensation Practices, and Accounting Flexibility

Abstract

In this paper, responses from fifty-five Canadian audit partners are used to explore the links between concurring (or second partner) reviews, partner compensation practices, and accounting flexibility, and partners' judgments of client's preferred accounting choices. Surprisingly, given existing academic and professional writings, the results fail to support a significant (inverse) association between the effectiveness of concurring reviews and the influence client's preferred accounting treatments have on the partners' judgments. Similarly, the results also fail to support the hypothesis that partner judgments will be less (more) influenced by client preferences where partner compensation reflects a firm wide (versus local office) orientation. In contrast, and consistent with prior research, the results strongly support the hypothesis that audit partner judgments are more influenced by client preferences where greater accounting flexibility exists, and further whether this flexibility is income-affecting or disclosure oriented.

JEL Classification: M49