Individual Auditor Style and Audit Quality in a High Reputation Risk Setting

51 Pages Posted: 9 Oct 2017

See all articles by Vlad-Andrei Porumb

Vlad-Andrei Porumb

University of Groningen

Abe de Jong

Rotterdam School of Management, Erasmus University; Monash University

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 tests whether the “style” of individual auditors shapes abnormal accruals in a setting where reputation risk is the main driver of audit quality. The German audit environment is characterized by high reputation risk and is one of the few where listed companies are required to report the names of individual engagement and review partners. This allows us to use the methodology pioneered by Bertrand and Schoar (Quarterly Journal of Economics 118, 2003: 1169-1208) and apply fixed effects models to measure the impact of individual auditors’ style on audit quality. Our results confirm the relevance of reputation risk and suggest that, after controlling for audit firm and audit office effects, individual audit partners have a detectable influence on the abnormal accruals of their clientele. This outcome is consistent with audit quality in German corporations being a function of distinct firm, office, and individual auditor styles. Additional tests show that individual auditor style effects explain the variation in (opportunistic) income-increasing accruals, while income-decreasing accruals are explained by office style effects.

Keywords: Auditor Style, Reputation, Audit Quality, Audit Partner Fixed Effects

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, Individual Auditor Style and Audit Quality in a High Reputation Risk Setting (September 27, 2017). Available at SSRN: https://ssrn.com/abstract=3048713 or http://dx.doi.org/10.2139/ssrn.3048713

Vlad-Andrei Porumb (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/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

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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