’Till Death Do Us Part: An Examination of the Impact of Unbroken Auditor-Client Relationships on Audit Efficiency and Audit Quality

Document Type

Article

Publication Date

2-1-2024

Abstract

We examine whether audit engagements where the client has never switched auditors (original auditors) are associated with different audit fee and audit quality outcomes, relative to engagements that have experienced an auditor change. We document that clients with original auditors accrue nontrivial audit fee savings. Further, we find original auditor engagements are associated with lower levels of discretionary accruals and lower likelihood of misstatements, implying higher audit quality. We also find that investors appear to recognize the audit fee and quality benefits, as these auditors receive fewer votes from investors against their ratification. These results are consistent with a reduction in information asymmetry from greater client specific knowledge with original auditors, leading to more efficient and effective audits. Finally, we document that the audit fee and audit quality benefits diminish for engagements that exceed 40 years, providing some support for the benefit of an eventual fresh look in the audit.

Publication Source (Journal or Book title)

Auditing

First Page

167

Last Page

190

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