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

Author

Listed:
  • Gerald J. Lobo

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

  • Luc Paugam

    (ESSEC Business School)

  • Dana 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

Using a sample of firms from France, where the law requires the use of two auditors, we study the effect of auditor pair composition on audit quality by examining a specific account, goodwill impairment. We document that firms audited by a Big 4–non‐Big 4 auditor pair (BS) are more likely to book an impairment and book a larger impairment than firms audited by a Big 4–Big 4 auditor pair (BB) when low‐performance indicators suggest a greater likelihood of impairment. Moreover, firms audited by a BB pair reduce impairment disclosures when they book impairments, while firms audited by a BS pair do not, suggesting lower transparency for firms audited by a BB pair. Our results inform investors and firms in mandatory joint audit regimes, as well as regulators who are considering requiring joint audits.

Suggested Citation

  • Gerald J. Lobo & Luc Paugam & Dana Zhang & Jean-François Casta, 2017. "The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests," Post-Print hal-01821839, HAL.
    • Handle: RePEc:hal:journl:hal-01821839
    DOI: 10.1111/1911-3846.12244
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    Citations

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    Cited by:

    1. Ionela-Corina CHERSAN, 2019. "Audit Quality and Several of Its Determinants," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(153), pages 1-93.
    2. Benjamin T. Albersmann & Reiner Quick, 2020. "The Impact of Audit Quality Indicators on the Timeliness of Goodwill Impairments: Evidence from the German Setting," Abacus, Accounting Foundation, University of Sydney, vol. 56(1), pages 66-103, March.
    3. Mohamed M. El-Dyasty & Ahmed A. Elamer, 2022. "Multiple audit mechanism, audit quality and cost of debt: empirical evidence from a developing country," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(3), pages 264-281, September.
    4. Tarek Abdelfattah & Mohamed Elmahgoub & Ahmed A. Elamer, 2021. "Female Audit Partners and Extended Audit Reporting: UK Evidence," Journal of Business Ethics, Springer, vol. 174(1), pages 177-197, November.
    5. Mihai Carp & Costel Istrate, 2021. "Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market," Sustainability, MDPI, vol. 13(12), pages 1-16, June.
    6. Johannes Thesing & Patrick Velte, 2021. "Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator," Journal of Business Economics, Springer, vol. 91(7), pages 965-1004, September.
    7. Mehdi Nekhili & Fahim Javed & Haithem Nagati, 2022. "Audit Partner Gender, Leadership and Ethics: The Case of Earnings Management," Journal of Business Ethics, Springer, vol. 177(2), pages 233-260, May.
    8. Dan Dacian Cuzdriorean, 2018. "Auditing Research: A Review Of Recent Research Advances," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(4), pages 14-26.
    9. Andrei Filip & Gerald J. Lobo & Luc Paugam, 2021. "Managerial discretion to delay the recognition of goodwill impairment: The role of enforcement," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 36-69, January.
    10. d'Arcy, Anne & Tarca, Ann, 2018. "Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences," The International Journal of Accounting, Elsevier, vol. 53(3), pages 203-226.

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