The Effect of Auditor Style on Reporting Quality: Evidence from Germany

Accepted in Abacus

42 Pages Posted: 9 Oct 2017 Last revised: 3 Dec 2020

See all articles by Vlad-Andrei Porumb

Vlad-Andrei Porumb

University of Manchester - Alliance Manchester Business School

Abe de Jong

Monash University; University of Groningen; European Corporate Governance Institute (ECGI)

Carel Huijgen

University of Groningen - Faculty of Economics and Business

Teye A. Marra

University of Groningen - Faculty of Economics and Business

Jan van Dalen

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: September 27, 2017

Abstract

This paper examines whether the ‘style’ of individual auditors influences financial reporting quality in Germany. Audit quality in Germany should be uniformly high, because of strong reputational needs, strict controls on operating procedures, and quality enforcement mechanisms. An audit partner’s style should not affect this quality level. However, our results do not support this expectation. Exploiting a unique dataset comprising the names of the audit engagement and review partners of listed German companies, we find that audit engagement partners in Germany have a significant influence on audit quality, beyond firm- and office-level factors. In contrast, audit review partners do not have a consistent significant influence on audit quality. We measure audit quality by the level of a firm’s abnormal accruals and its propensity to meet or beat an earnings target. We also find that the 2005 adoption of a new audit quality enforcement system that includes ‘naming and shaming’ does not reduce the influence of audit partner style on financial reporting quality.

Keywords: audit quality, auditor style, engagement partner, Germany, reputation, review partner

JEL Classification: C33, K20, M42, M48

Suggested Citation

Porumb, Vlad-Andrei and de Jong, Abe and Huijgen, Carel A. and Marra, Teye A. and van Dalen, Jan, The Effect of Auditor Style on Reporting Quality: Evidence from Germany (September 27, 2017). Accepted in Abacus, Available at SSRN: https://ssrn.com/abstract=3048713 or http://dx.doi.org/10.2139/ssrn.3048713

Vlad-Andrei Porumb (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Abe De Jong

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://research.monash.edu/en/persons/abe-de-jong

University of Groningen ( email )

Postbus 72
9700 AB Groningen
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Carel A. Huijgen

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands
+3150 363 7206 (Phone)

Teye A. Marra

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Jan Van Dalen

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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