Opening Up the Black Box of Audit Firms: The Effects of Audit Partner Ownership on Audit Adjustments

• 成果类型: Article
• 署名作者: Lennox, Clive; Wang, Chunfei; Wu, Xi
• 署名单位: University of Southern California; Central University of Finance & Economics; Central University of Finance & Economics
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12333
• 发表日期: 2020
• 页码: 1299-1341
• 关键词: enforcement actions; QUALITY; COSTS

摘要

Audit firms need to provide high-quality audits but they also need to please their clients. We argue that these conflicting incentives become manifest when comparing the incentive effects of equity ownership on engagement quality (EQ) reviewers and audit engagement partners. We predict that EQ reviewers monitor audit quality more closely when they hold greater ownership. In contrast, we expect that equity ownership has conflicting effects on the incentives of engagement partners because they need to please their clients as well as provide high-quality audits. Consistent with these predictions, we find that the associations between audit adjustments and partner equity ownership are (1) significantly positive for EQ reviewers, (2) significantly negative or insignificant for audit engagement partners, and (3) significantly more positive for EQ reviewers than engagement partners. Our findings suggest that larger ownership stakes motivate EQ reviewers to monitor audit quality more closely, whereas larger ownership stakes do not motivate engagement partners to deliver higher quality audits.