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Audit Firm Switch and Engagement Partner Continuance


  • Fukukawa, Hironori
  • Karube, Masaru


This study examines how audit fees change when companies switch audit firms. In particular, we are interested in the effect of engagement partners’ familiarity with clients on the changes in audit fees. On the basis of the unique data on individual engagement partners obtained from auditors’ reports in Japan, this study uses a more direct measure of partner.client familiarity than previous studies. By identifying engagement partners on both final and initial audits, we find that when audit fees increase after an audit firm switch, the ratio of engagement partners on initial audits who had been involved with the client before the switch has a negative impact on the increase in audit fees. On the other hand, when audit fees do not increase, no significant relationship is found between them. Furthermore, this study provides some evidence on the effect of the demise of ChuoAoyama, which was one of the Big 4 firms in Japan.

Suggested Citation

  • Fukukawa, Hironori & Karube, Masaru, 2013. "Audit Firm Switch and Engagement Partner Continuance," IIR Working Paper 13-05, Institute of Innovation Research, Hitotsubashi University.
  • Handle: RePEc:hit:iirwps:13-05
    Note: Data used in this study are obtainable from public sources.

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    References listed on IDEAS

    1. Johnson, W. Bruce & Lys, Thomas, 1990. "The market for audit services : Evidence from voluntary auditor changes," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 281-308, January.
    2. Emilie Feldman, 2006. "A Basic Quantification of the Competitive Implications of the Demise of Arthur Andersen," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(3), pages 193-212, November.
    3. Karla M. Johnstone & Jean C. Bedard, 2004. "Audit Firm Portfolio Management Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 659-690, September.
    4. Zhan Shu, Susan, 2000. "Auditor resignations: clientele effects and legal liability," Journal of Accounting and Economics, Elsevier, vol. 29(2), pages 173-205, April.
    5. DeAngelo, Linda Elizabeth, 1981. "Auditor independence, `low balling', and disclosure regulation," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 113-127, August.
    6. repec:eee:reacre:v:20:y:2008:i:c:p:103-126 is not listed on IDEAS
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    Audit firm switch; Engagement partner continuance; Audit fees;

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