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Effect Of Joint Auditor Pair On Conserv A Tism: Evidence From Impairment Tests

Author

Listed:
  • Gérald Lobo

    (C. T. Bauer College of Business - University of Houston)

  • Luc Paugam

    (ESSEC Business School)

  • Lana Zhang

    (C. T. Bauer College of Business - University of Houston)

  • Jean-François Casta

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

sing a sample of firms from France, where the law requires use of two auditors, we examine the effect of auditor pair composition on overall measures of unconditional and conditional conservatism, as well as on a specific measure of conditional conservatism, i.e., impairment loss. We use game theory to demonstrate that pairs of Big 4 auditors facing similar incentives are likely to have lower auditor independence, leading to lower conservatism. Conversely, pairs of a Big 4 and a Small auditor increase Big 4 auditors' incentives to be conservative. We document that Big 4-Small auditor pairs are more unconditionally and conditionally conservative using market-to-book ratio and Basu's (1997) measure of conservatism, are more likely to book impairments when operating performance is low, and make more transparent impairment-related disclosures. Our results inform regulators who are considering requiring joint audit to improve audit quality.

Suggested Citation

  • Gérald Lobo & Luc Paugam & Lana Zhang & Jean-François Casta, 2013. "Effect Of Joint Auditor Pair On Conserv A Tism: Evidence From Impairment Tests," Post-Print hal-00993007, HAL.
    • Handle: RePEc:hal:journl:hal-00993007
    Note: View the original document on HAL open archive server: https://hal.science/hal-00993007
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    References listed on IDEAS

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