How Do Leadership Roles Influence the Quality of Audit Partners’ Engagements?

Abstract

Despite the commonality of being both owners and agents, partners’ roles and responsibilities in accounting firms can vary significantly. We first conduct 21 semi-structured interviews of U.S. audit partners who have held office, regional, or national leadership roles to understand how leaders are selected and evaluated, as well as the responsibilities for each type of leadership role. The interviews suggest that leadership roles entail significant responsibility for business growth and development and other administrative tasks, often in addition to client service responsibilities. Grounded in the insights from these interviews, we then empirically examine how audit partners’ leadership roles influence the quality of their audits in the U.S. We find that clients of audit partners in leadership roles are more likely to subsequently restate their financial statements. Further analyses suggest that partner capacity constraints, rather than impaired independence, influence this association.