A Matter of Appearances: How Does Auditing Expertise Benefit Audit Committees When Selecting Auditors?

Posted: 6 Oct 2021

See all articles by Matthew Baugh

Matthew Baugh

Arizona State University (ASU) - School of Accountancy

Nicholas Hallman

University of Texas at Austin

Steven J. Kachelmeier

University of Texas at Austin

Multiple version iconThere are 2 versions of this paper

Date Written: September 6, 2021

Abstract

Literature to date reveals relatively little about the role of expertise in auditor selection beyond basic preferences for Big 4 and industry specialist auditors. We hypothesize that audit committees whose members have no Big 4 auditing experience are likely to struggle when interviewing prospective Big 4 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 Form AP filings recently mandated by the US PCAOB. Our primary finding is that audit committees with no Big 4–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 4–experienced members. We do 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 enabling audit committees to fulfill their stewardship role more effectively.

Keywords: audit committees, expertise, attractiveness, dual-processing theory, elaboration likelihood model, auditor selection

Suggested Citation

Baugh, Matthew and Hallman, Nicholas and Kachelmeier, Steven J., A Matter of Appearances: How Does Auditing Expertise Benefit Audit Committees When Selecting Auditors? (September 6, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3924822

Matthew Baugh (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Nicholas Hallman

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Steven J. Kachelmeier

University of Texas at Austin ( email )

Department of Accounting
2110 Speedway, Mail Stop B6400
Austin, TX 78712
United States
512-471-3517 (Phone)
512-471-3904 (Fax)

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