Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK

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Abstract

Social psychology literature suggests that shared working experience between individuals affects the way in which they communicate, interact and exchange information. Given that the relationship between audit committee (AC) and engagement partner (EP) involves extensive interactions and information sharing with the aim to protect the integrity of financial statements, this study examines whether the co-tenure relationship between the person who leads the AC (audit committee chair (ACC)) and EP affects audit outcomes. Using 234 UK non-financial companies, we find that longer co-tenure between ACC and EP improves accruals quality and reduces the propensity to meet or beat the earnings benchmark. Moreover, we do not find a significant relationship between ACC–EP shared tenure and audit fees, alleviating the concern that ACC–EP shared tenure could lead to collusion or inappropriate favoritism towards the EP regarding audit fees. Our findings offer a valuable contribution to the literature, practice, and regulators.
Original languageEnglish
Article number101067
Pages (from-to)(In Press)
JournalThe British Accounting Review
Volume(In Press)
Early online date8 Nov 2021
DOIs
Publication statusE-pub ahead of print - 8 Nov 2021

Keywords

  • Audit committee chair
  • Audit fees
  • Audit quality
  • Engagement partner
  • Shared tenure

ASJC Scopus subject areas

  • Accounting

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