Audit Partners’ Risk Tolerance and the Impact on Audit Quality

63 Pages Posted: 8 Jan 2019 Last revised: 16 May 2019

See all articles by Jeffrey Pittman

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Sarah E. Stein

Virginia Tech

Delia F. Valentine

Virginia Tech

Date Written: May 15, 2019

Abstract

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

Pittman, Jeffrey A. and Stein, Sarah E. and Valentine, Delia F., Audit Partners’ Risk Tolerance and the Impact on Audit Quality (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=3311682 or http://dx.doi.org/10.2139/ssrn.3311682

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Sarah E. Stein (Contact Author)

Virginia Tech ( email )

Blacksburg, VA 24061
United States

Delia F. Valentine

Virginia Tech ( email )

VA
United States

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