Political Contributions and the Auditor-Client Relationship

Abstract

We investigate the impact of audit client political contributions on various audit attributes. We find that, despite having poorer accruals quality, clients with higher political contributions have fewer restatements, receive no more going concern qualified opinions, and receive fewer reported material weaknesses. Additionally, we find that auditors earn higher fees from and have longer tenure with their politically connected clients. Our evidence is indirect, but the totality of our results is most consistent with an economic bond between auditors and their politically connected clients, whereby clients are allowed more accounting discretion and receive fewer adverse audit outcomes, and the auditor charges a persistent risk premium. Our evidence extends prior research concluding that political connections afford firms influence over governments, lenders, and regulators.