Does Visibility of an Engagement Partner’s Association with Recent Client Restatements Increase Fee Pressures from Non-Restating Clients?
70 Pages Posted: 8 Sep 2017 Last revised: 10 Mar 2021
Date Written: March 2021
We examine whether engagement partners who have recently been associated with client restatements experience increased audit fee pressures from their non-restating clients. Using data from the United States (U.S.) and Taiwan, we find evidence of lower audit fees among non-restating companies whose audit engagement partner was recently associated with another client’s restatement. These findings are generally strongest when the partner-associated restatement is more prominent or severe, and in the U.S., when non-restating clients are in the same industry as the restating client. Although we find very limited evidence that fee pressures lead to lower quality audits for these partners’ other clients in Taiwan, we find that when the partner-associated restatement is more prominent or severe, fee pressures negatively impact audit quality in the U.S. These findings provide further insight on the impact of engagement partner disclosure for audit quality.
Keywords: audit quality, engagement partners, audit partners, audit fee pressure
JEL Classification: M41, M42
Suggested Citation: Suggested Citation