The effects of audit partner pre-client and client-specific experience on audit quality and on perceptions of audit quality
We examine the associations between audit partner pre-client and client-specific experience and audit quality using data from Taiwan, where signing audit partner names are disclosed. Using discretionary accruals and interest rate spreads to proxy for audit quality and perceptions of audit quality, respectively, we find that both pre-client and client-specific experience improve audit quality and creditor perceptions of audit quality. We also find that audit partner pre-client experience is positively associated with audit quality early in the engagement, but not when the partner has been with the client for at least five years. Our findings provide evidence consistent with the assumption underlying the Public Company Accounting Oversight Board’s decision to require the disclosure of engagement partner names. They also suggest that pre-client experience cannot completely mitigate the loss of client-specific knowledge when partner or audit firm turnover occurs.
KeywordsAudit partner experience Audit quality Discretionary accruals Interest rate spreads Auditor tenure
JELM4 M41 M42
We thank Paul Fischer (the Editor), two anonymous reviewers, Brian Bratten, Monika Causholli, Andrew Doucet, Guojin Gong, Ole-Kristian Hope, Yue Li, Linda McDaniel, James Myers, Robert Ramsay, Steven Salterio, Marjorie Shelley, Shui-Liang Tung, Chung-Fern Wu, Minlei Ye, and David Ziebart; participants at the 2nd Symposium of China Journal of Accounting Research, the 2010 CAPANA Conference, and the 2011 European Accounting Association conference; as well as workshop participants at National Taiwan University and at the University of Kentucky for helpful comments and suggestions. Wuchun Chi gratefully acknowledges financial support from National Science Council (Project No. NSC 94-2416-H-004-036). Linda Myers gratefully acknowledges financial support from the Haslam Chair of Business at the University of Tennessee, Knoxville, and from the Garrison/Wilson Chair while at the University of Arkansas. Thomas Omer gratefully acknowledges financial support from the Delmar Lienemann Sr. Chair of Accounting at the University of Nebraska-Lincoln and from Ernst & Young while at Texas A&M University. Hong Xie gratefully acknowledges financial support from the Von Allmen Research Support endowment and the PwC fellowship endowment at the University of Kentucky.
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