A Matter of Appearances: How Does Auditing Expertise Benefit Audit Committees When Selecting Auditors?
57 Pages Posted: 11 Oct 2017 Last revised: 6 May 2021
Date Written: May 6, 2021
We hypothesize that audit committees whose members have no Big-Four auditing experience are likely to struggle when interviewing prospective Big-Four partners, leading such committees to draw on superficial, heuristic cues in lieu of conducting more substantive evaluations. To test this prediction, we obtain independent ratings of the facial attractiveness of audit partners identified from PCAOB Form AP filings. Our primary finding is that audit committees with no Big-Four-experienced members are more likely to favor partners whose photographs raters view to be highly attractive. We characterize attractiveness as a superficial attribute for auditor selection because we detect no relation between attractiveness and accruals- or restatement-based measures of financial reporting quality for audit committees with one or more Big-Four-experienced members, whereas we find an inverse association between attractiveness and financial reporting quality for committees without this experience, likely reflecting the statistical implication of a selection bias. We conclude that auditing expertise mitigates the influence of superficial considerations in auditor selection.
Keywords: Audit committees, expertise, attractiveness, dual-processing theory, elaboration likelihood model, auditor selection, audit fees
JEL Classification: M42, G34, G41
Suggested Citation: Suggested Citation