Do Use of Foreign Auditor Personnel and Lead Engagement Partner Incentives Affect Audit Quality for U.S. Multinational Companies?

Posted: 18 Jun 2019

See all articles by Denise Downey

Denise Downey

Villanova University

Jean C. Bedard

Bentley University - Department of Accountancy

Date Written: June 2019

Abstract

While audit opinions for multinational entities are signed by a single national firm, other firms (often in the same global network) participate in gathering and evaluating evidence from client components in other countries. Regulators have recently recognized coordination and monitoring problems with these engagements, and research has begun to assess audit quality impacts. We use data from the Public Company Accounting Oversight Board (PCAOB) to investigate whether audit quality (measured as total and reissuance restatements) differs with foreign auditor participation in engagements led by U.S. global network firms, and whether audit partner incentives moderate those associations. Results show that restatements are higher with foreign auditor participation, but this effect is moderated by the client importance, utilization (i.e., billable hours) and tenure of the lead engagement partner. We obtain these results while controlling for office-level client importance, firm tenure, and characteristics distinguishing multinational engagements with more versus less foreign auditor participation.

Keywords: Multinational Audits; Group Audits; Multilocation Audits; Audit Quality; Audit Partners

Suggested Citation

Downey, Denise and Bedard, Jean C., Do Use of Foreign Auditor Personnel and Lead Engagement Partner Incentives Affect Audit Quality for U.S. Multinational Companies? (June 2019). Available at SSRN: https://ssrn.com/abstract=3401466

Denise Downey (Contact Author)

Villanova University ( email )

Villanova, PA 19085
United States

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

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