Engagement Partner Attributes and Audit Quality: Does the Partner’s Ownership Stake Matter?

Abstract

We investigate the association between audit quality and some unique attributes of the engagement audit partners in the Turkish audit market during the period 2008-2014. We specifically examine the impact of the engagement partners’ ownership stakes in their audit firms, their busyness and in-house tenure in their current firms, and whether the impact is different for the “top guys” with the largest % ownership in the firm, on the probability of restatements, qualified opinions, going concern qualifications, and less egregious and less direct earnings management type audit failures such as the use of discretionary accruals. The results show that ownership % plays a role in independent audit judgments and increases the audit quality. We contribute to audit firm partnership and audit quality literature by introducing the engagement partner’s ownership stake in his firm as a comprehensive proxy for the auditor’s supply of audit quality. This variable could also be helpful in many emerging markets where audit fees data are not publicly disclosed. The study also sheds some light on whether the accounting and auditing reforms that took place in 2012 improved audit quality in Turkey. Our study may be of interest to researchers, regulators and client and audit firms all over the world.