The Effect of the Engagement Partner-Client Economic Bond on Audit Quality in the UK
50 Pages Posted: 15 Oct 2020
Date Written: April 5, 2020
Abstract
This study examines whether (1) high fee-paying clients consider engagement partner quality in auditor appointments and (2) engagement partners compromise their independence for economically important clients. Employing a UK setting where the lead audit engagement partner is identified, we find that while engagement partners influence audit outcomes, clients do not pay above expected audit fees either to select low-quality partners to enable them to manage their earnings or high-quality partners to signal the strength of their financial statements. We also find no evidence to suggest that partners compromise their independence for economically important clients, regardless of the possible rewards attached to how much revenue they generate. Together, we surmise that the increased regulation of partner activities and improved corporate governance, in the UK, has lessened concerns regarding excessive fees and low audit quality.
Keywords: engagement partner, audit fees, audit quality, client importance, auditor-client economic bond
JEL Classification: M42
Suggested Citation: Suggested Citation
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