The effect of audit partner gender on modified audit opinions

Abstract

We examine the effect of audit partner gender on the likelihood of issuing a modified audit opinion (MAO) across conditions in which the issuance of an MAO is warranted and/or that create incentives to report opportunistically at the audit‐partner level. We find that, after an audit partner switch, female audit partners are more likely to issue first‐time MAOs and MAOs generally and that female audit partners are more persistent in issuing MAOs. However, after correcting for self‐selection bias, we do not find an effect on the part of audit partner gender on the likelihood of issuing an MAO in the case of partner‐level opinion shopping, subsequently failing firms, or firms that are economically important at the audit‐partner level. This stands in contrast with the previous evidence regarding the effect of audit partner gender on going‐concern reporting. Overall, our study provides new evidence regarding the conditions that induce female audit partners to report more conservatively compared with male audit partners. The results imply that female audit partners report more conservatively if an MAO was issued in the previous year and if the audit partner has been switched.