A Fresh Look or Resource Constraints? Examining Changes to Component Auditor Use Following Audit Partner Rotation

47 Pages Posted: 31 May 2023 Last revised: 23 May 2024

See all articles by Russell Barber

Russell Barber

University of Colorado Denver

Jenna Burke

University of Colorado at Denver

Katherine Gunny

University of Colorado at Denver

Date Written: May 23, 2024

Abstract

This paper examines whether component auditor use changes following audit partner rotation. For U.S. multinationals, the audit partner must determine whether and to what extent audit procedures, and therefore component auditors, are needed in foreign locations. A new audit partner may not change component auditor use given audit firms strive for continuity during rotations, however, they may provide a fresh look at these decisions or face resource constraints and need time to acquire client and component auditor-specific knowledge. We find incoming partners significantly decrease the number of component auditors used. This decrease is not associated with audit quality changes, reverses over the partner’s tenure cycle, and is magnified when the audit partner faces fee pressure, suggesting that resource constraints and the need to acquire knowledge, rather than fresh-look, explain the finding. Additionally, this result is concentrated in small component auditors where the audit partner has more discretion. While prior literature demonstrates increased hours following audit partner rotation, we provide insight into a specific, important, and complex decision made by new audit partners.

Keywords: Audit Partner Rotation; Component Auditor; Audit Quality; Audit Fees

JEL Classification: M42, G18, G28, F0

Suggested Citation

Barber, Russell and Burke, Jenna and Gunny, Katherine, A Fresh Look or Resource Constraints? Examining Changes to Component Auditor Use Following Audit Partner Rotation (May 23, 2024). Available at SSRN: https://ssrn.com/abstract=4459652 or http://dx.doi.org/10.2139/ssrn.4459652

Russell Barber

University of Colorado Denver ( email )

United States

Jenna Burke (Contact Author)

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

Katherine Gunny

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

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