Audit Partners’ Risk Tolerance and the Impact on Audit Quality
63 Pages Posted: 8 Jan 2019 Last revised: 16 May 2019
Date Written: May 15, 2019
Relying on their history of legal infractions to measure individuals’ risk tolerance, we examine the impact of engagement partners’ risk appetites on audit quality in the U.S. Psychology research links criminal activity with enduring personality traits that capture an individual’s tolerance for risk. Consistent with expectations, we document that partners known to exhibit risky behaviors conduct lower quality audits. More specifically, we find that clients of more risk-tolerant partners exhibit greater propensity to misstate and less timely loss recognition, while also paying lower audit fees. This evidence is robust to implementing propensity score matching techniques and to alternative measures of partner risk tolerance. Collectively, our analysis contributes to emerging research on the role that individual audit partner characteristics play in shaping audit outcomes.
Keywords: audit partner, audit quality, risk tolerance, legal infractions
JEL Classification: M40, M42, K42
Suggested Citation: Suggested Citation