The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests

Lobo, Gerald J.; Paugam, Luc; Zhang, Dana; Casta, Jean‐François

doi:10.2139/ssrn.2653412

Cited by 6 publications

(7 citation statements)

References 47 publications

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“…Lobo et al . () examine the impact of auditor pairs in France, where joint audits are mandatory. They find that firms audited by a Big 4–non‐Big 4 auditor pair are more likely to recognize goodwill impairments than firms audited by a Big 4–Big 4 auditor pair, when low‐performance indicators suggest that goodwill is likely to be impaired.…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

“…Goodwill impairment tests are often the main focus of auditors, due to the generally high risk of material misstatement and the considerable attention from enforcement institutions. Focusing on the timeliness of goodwill impairments might, therefore, enable powerful tests of the monitoring effect that auditors have on ensuring appropriate and reasonable impairment tests (Lobo et al ., ). An increase in audit quality might increase the timeliness of goodwill impairments, as strong external monitoring mechanisms are expected to reduce information asymmetries and deter management from engaging in opportunistic reporting practices, due to an increased risk of detection and the associated penalties (Jensen and Meckling, ; Fama and Jensen, ).…”

mentioning

confidence: 97%

“…This also represents a different way to investigate the role of auditors in improving financing reporting quality, and therefore complements the accounting literature on audit quality. Prior studies have assessed the impact of joint auditor pairs on impairment recognition in France (Lobo et al ., ) and audit firm size on the compliance of impairment testing disclosures in Australia (Bepari and Mollik, ), as well as audit firm size and auditor industry specialization on the analyst forecast accuracy/dispersion associated with goodwill impairments (Chen et al ., ). In contrast, this study explicitly addresses the timeliness of goodwill impairments and focuses on several auditor characteristics, therefore providing a more in‐depth analysis of audit quality factors.…”

mentioning

confidence: 99%

“…Further, the Lobo et al . () study is based on joint audits in France and analyzes the impact of auditor pairs and their tenure. It hence cannot be assumed that findings from a joint audit setting are generalizable to a single audit setting (like in Germany and most other countries).…”

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confidence: 99%

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The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Albersmann

Quick

2020

Abacus

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This study investigates whether goodwill impairments are perceived as timely and whether specific auditor characteristics affect the perceived timeliness. It therefore contributes to central questions in accounting research: is managerial discretion over accounting numbers (accounting choice) good or bad for stakeholders and does audit quality have an impact on this relationship? It is motivated by the IASB's post‐implementation review on business combinations and the Goodwill and Impairment project based on it, the ongoing debate on the decision usefulness of impairment testing, and the question whether auditors have an impact on firms’ reporting of impairment losses. Based on a sample of German listed firms for the period 2006 to 2013, the results indicate that goodwill impairments are not recognized in a timely manner and delayed by at least one to two years. Moreover, the findings suggest that the recognition of impairment losses is influenced by auditor characteristics. In particular, firms seem to report goodwill impairments in a more timely fashion when they are audited by a Big 4 auditor, whereas the timeliness seems to decrease with a higher non‐audit fee ratio and a longer auditor tenure. Moreover, additional analyses indicate that higher audit fees lead to more timely impairments.

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Section: Prior Literature and Hypothesesmentioning

confidence: 99%

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confidence: 97%

mentioning

confidence: 99%

mentioning

confidence: 99%

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The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Albersmann

Quick

2020

Abacus

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“…Second, BSA members can be from the same or different accounting firms. When members are from different accounting firms, the BSA operates in a fashion similar to a French joint audit (Francis, Richard, and Vanstraelen ; Audousset‐Coulier ; Lobo, Paugam, Zhang, and Casta ). When at least two BSA members are from the same firm, the BSA operates in a fashion similar to other international joint audit settings: (i) Taiwan (Aobdia et al.…”

Section: Institutional Settingmentioning

confidence: 99%

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Bianchi

2017

Contemporary Accting Res

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This study examines the effect of auditors’ collaboration in joint audit engagements on knowledge transfer, auditor expertise, and audit outcomes. I employ a unique sample of Italian private companies whose financial statements are jointly audited by three individual auditors and use measures from the network literature to capture the intensity of interactions between these auditors. I find a positive association between several audit quality proxies and auditors’ collaboration in multiple joint engagements. My results suggest that auditors develop knowledge and contacts through collaboration which potentially leads to higher audit quality. Overall, my findings suggest that joint engagements facilitate knowledge transfer and increase auditor expertise.

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Do Joint Audits Improve or Impair Audit Quality?

Deng

Simunic

et al. 2014

J of Accounting Research

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Conventional wisdom holds that joint audits would improve audit quality by enhancing audit evidence precision because “Two heads are better than one.” Our paper challenges this wisdom. We show that joint audits by one big firm and one small firm may impair audit quality, because, in that situation, joint audits induce a free‐riding problem between audit firms and reduce audit evidence precision. We further derive a set of empirically testable predictions comparing audit evidence precision and audit fees under joint and single audits. This paper, the first theoretical study of joint audits, contributes to a better understanding of the economic consequences of joint audits on audit quality.

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The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests

Cited by 6 publications

References 47 publications

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting

Auditors’ Joint Engagements and Audit Quality: Evidence from Italian Private Companies

Do Joint Audits Improve or Impair Audit Quality?

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