This study examines the relation between the audit failures of individual auditors and the quality of other audits performed by these same auditors. Employing a Chinese setting where audit reports reveal the identities of engagement auditors, we find that auditors who have performed failed audits also deliver lower-quality audits on other audit engagements, with this “contagion” effect spreading both over time and to other audits performed by these same auditors in the same year. However, we find little evidence that an audit failure also casts doubt on the quality of audits performed by “non-failed” auditors who are same-office colleagues of a “failed” auditor. We further discover that the contagion effect is attenuated for female auditors, auditors holding a master's degree, and auditors with more auditing experience. Our results underscore the usefulness of disclosing the identity and personal characteristics of individual auditors to investors and regulators.

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Purpose – The purpose of this paper is to investigate the impact of different sources of external financing and internal financial capabilities on competitiveness and sustainability. This paper also studies the nature of their relationships related to regulations on external financing in Chinese capital market. Design/methodology/approach – Resource- and industry-based views provide a theoretical background. Based on balanced panel of 4,530 firm-year observations, hierarchical regressions were used to examine the research model. Findings – Results support the idea that the strict Chinese regulatory regime allows some firms to access capital and debt markets for financing more than others. It was found that firms’ internal financing abilities do not offer a significant advantage compared to external financing abilities; firms’ abilities to raise capital from existing shareholders, the public and easy access to bank financing are related positively for an advantage on firm’s competitiveness within a industry. Firms with the ability to offer shares to existing shareholders, issue non-convertible and convertible bonds and access to bank financing are sustainable in long-run. Research limitations/implications – This study focuses on sources of financial capability of Chinese listed firm impact on competitiveness and sustainability. It is context specific to a regulated market. Hence, it is necessary to replicate this study in other contexts. Practical implications – Implications include the need to mobilize external financial resources for small and privately-owned firms and to further reform security regulations to ensure fair competition and sustainability. Originality/value – The authors originally investigate the effect of sources of financial capability impact on firms’ competitiveness and sustainability in a regulated market. The paper explains the relationships, and enhances the understanding of regulated capital market and existing literature.

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Prior literature finds that audit firm style shapes client firm financial statement comparability (Francis, Pinnuck, and Watanabe 2014). We expect that engagment partners also shape financial statement comparability, and find that two clients audited by the same engagement auditor have more comparable accruals than two clients audited by different auditors. We also find that engagement auditor past comparability style explains new client comparability with industry peers, suggesting that engagement auditor style persists over time. We uncover that auditor personal traits such as gender, experience, qualification, and industry-specialization are associated with higher comparability. Finally, we find that adding the audit-firm, audit-office and engagement-auditor fixed effects sequentially increases the adjusted R2 of our accrual comparability model by 0.6%, 1.9%, and 10%, respectively. Taken together, our findings suggest that the engagement auditors have a distinguishable effect on financial statement comparability that is incremental to the effect of audit firms and offices.