Learning from Masters: Engagement Partners’ Co-Signing Relationships with Non-Engagement Industry Specialist Partners and Audit Quality

Abstract

This paper examines a specific mechanism, partner co-signing relationships, through which knowledge sharing in an audit team may influence audit quality. Specifically, we examine whether an engagement partner’s co-signing relationships with non-engagement industry specialist partners are associated with audit quality. Using a unique setting in which co-signing relationships for each audit engagement is available, we find that audit quality is higher when the engagement partner for the focal client has co-signing relationships with non-engagement partners who are specialists in the focal client’s industry and that the positive association is more likely driven by a learning effect than a consultation effect. Further evidence suggests that attributes of co-signing relationships such as continuity matter and that co-signing relationships with industry specialist partners are more likely to be utilized when engagement partners have limited industry knowledge, clients operate in homogeneous industries, and engagement partners are from large audit firms. Overall, our results suggest that interactions with industry specialist partners facilitate knowledge sharing and hence improve audit quality.