The effect of audit engagement partner professional experience on audit quality and audit fees: early evidence from Form AP disclosure

Abstract

PurposeThe purpose of this study is to examine the effect of audit engagement partner's professional experience on audit quality. The authors also investigate the relationship between the audit partner's experience and audit fees in both Big 4 and non-Big 4 accounting firms.Design/methodology/approachSince the Public Company Accounting Oversight Board (PCAOB) officially enacted Rule 3211 in 2017, US accounting firms are required to disclose detailed information of engagement partners in Form AP (PCAOB, 2015b). The authors obtained a sample of 2,283 audit partners from Form AP and hand collected their individual professional experience data through Certified Public Accountant (CPA) database, corporate disclosure and social media sites (e.g. Linkedin). Econometric models with fixed effects are used in this study to test our hypotheses. Two-stage least square (2SLS) model is used in the robustness test.FindingsThe authors find that the relationship between audit engagement partner's professional experience and audit quality is concave. It indicates that audit quality is increasing during the early stage of engagement partners' career and then decreases as the partners approaching the late-career phase. Further, the authors find that partner's professional experience is positively associated with audit fees in non-Big 4 accounting firms but not significantly associated with audit fees in Big 4 accounting firms.Practical implicationsThe finding of how auditor experience impacts audit quality can be useful for accounting firms to better plan their staffing in auditing engagements. This study’s results are also helpful for small accounting firms to optimize their pricing strategy.Originality/valueThis study provides new empirical evidence about the relation between auditor professional experience and audit quality. Furthermore, the authors extend the literature of audit fee determinants by testing the joint effects of audit firm-level factors and auditor individual-level professional experience on audit fees.

Audit Quality Analysis During Uncertain Economic Conditions

“…Thus, the author could conclude that the audit fee doesn't influence the audit quality of BPR ABC. It was also emphasized by the research of Mrs. Nanda as an academician, she found that audit fees didn't significantly influence the audit quality, which was in accordance with the prior research (Chen et al, 2019;Liu & Xu, 2021).…”

Examining Linkage Audit Quality Factors Intervening by Time Budget Pressure

“…While (Daniels and Booker, 2011) research state that independence significantly impacts audit quality. Furthermore, on other variables such as work experience, which is associated with audit quality, a previous study conducted by (Rajgopal et al, 2021) showed that work experience had a positive and significant effect both partially and simultaneously, while research conducted by (Liu and Xu, 2021), shows that audit experience does not have a considerable impact on the quality of audit results. In carrying out the audit process, auditors need good knowledge and experience.…”

Are abnormal audit fees informative about audit quality? The moderating role of office resource availability

“…Unfortunately, data on the above inputs at the office‐level are not publicly available, and some prior research has used non‐public data on hours of grades of labour of audit partners and managers (Hackenbrack & Knechel, 1997). Some recent studies have used data from LinkedIn to measure managerial resources (Lee et al, 2022; Liu & Xu, 2021). Our focus is on all resources available at the office‐level not just the number of audit professionals.…”