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

Gerald J. Lobo1; Luc Paugam2; Dana Zhang1; Jean François Casta3

1 University of Houston · 2 ESSEC Business School · 3 Université Paris Dauphine

Contemporary Accounting Research 2017

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.

DOI
10.1111/1911-3846.12244
Volume
34 (1)
Pages
118-153
Language
en
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