Audit Firms’ Client Acceptance Decisions: Does Partner-Level Industry Expertise Matter?

Posted: 8 Feb 2015 Last revised: 28 Sep 2015

See all articles by Yu-Ting Hsieh

Yu-Ting Hsieh

National Cheng Kung University

Chan-Jane Lin

National Taiwan University - College of Management

Date Written: Sepetmber 23, 2015

Abstract

This study examines whether auditor industry expertise affects firms’ client acceptance decisions. Analyzing listed firms in Taiwan, where audit partners’ signatures are disclosed on the audit report, we find that partner-level industry specialists, rather than firm-level industry specialists, are less likely to accept clients with higher audit risk. We also provide weak evidence that partner-level industry specialists are less likely to accept clients with higher financial risk. This is consistent with the notion that partner-level industry specialists have an incentive to protect their reputation when making client acceptance decisions. In 2002, following the spirit of the Sarbanes-Oxley Act (SOX), the Securities and Futures Commission in Taiwan adopted a series of new rules to improve audit quality. We examine the effect of SOX on client acceptance decisions and the results indicate that partner-level industry specialists manage risk by accepting clients with less audit risk since litigation risk increased after SOX.

Keywords: partner-level industry specialization; client acceptance decision; Big N auditors

Suggested Citation

Hsieh, Yu-Ting and Lin, Chan-Jane, Audit Firms’ Client Acceptance Decisions: Does Partner-Level Industry Expertise Matter? (Sepetmber 23, 2015). Available at SSRN: https://ssrn.com/abstract=2561720

Yu-Ting Hsieh

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

Chan-Jane Lin (Contact Author)

National Taiwan University - College of Management ( email )

Department of Accounting
1 Roosevelt Rd. Sec. 4
Taipei 106
Taiwan
886-2-3366-1115 (Phone)
886-2-2363-3640 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
923
PlumX Metrics