Does distance matter? An investigation of partners who audit distant clients and the effects on audit quality

62 Pages Posted: 27 Sep 2017 Last revised: 26 Sep 2021

See all articles by Jere R. Francis

Jere R. Francis

Maastricht University

Nargess Golshan

University of Kentucky

Nicholas Hallman

University of Texas at Austin

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2021

Abstract

We use hand-collected data to show that approximately half of audit partners are assigned to clients headquartered more than 100 kilometers away from the partners’ home locations. Few of these partners relocate after receiving their assignments and, as a result, more than one-third of clients are audited by partners that must commute long distances to visit the client in person. We explore this phenomenon by first modeling how distance affects partner-client matching. We find that partners’ geographic proximity to a prospective client is an important matching criterion, but also that tradeoffs are made when other partner characteristics such as industry specialization are more likely to be important. Next, we show that audit quality is lower when partners reside farther from their clients. We corroborate our primary findings by showing that the association between partner distance and audit quality is mitigated when partners have access to direct flights to their clients’ headquarters and when clients are geographically dispersed. Our paper should be informative for regulators, practicing auditors, and academics interested in how partner-client matching affects audit outcomes.

Keywords: Audit Partners, Geographic Proximity, Audit Quality

JEL Classification: M42

Suggested Citation

Francis, Jere R. and Golshan, Nargess and Hallman, Nicholas, Does distance matter? An investigation of partners who audit distant clients and the effects on audit quality (September 24, 2021). Available at SSRN: https://ssrn.com/abstract=3042791 or http://dx.doi.org/10.2139/ssrn.3042791

Jere R. Francis

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Nargess Golshan

University of Kentucky ( email )

Lexington, KY 40506
United States
40506 (Fax)

HOME PAGE: http://nargessgolshan.com

Nicholas Hallman (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
770
Abstract Views
3,823
rank
45,560
PlumX Metrics