The Consequences of Providing Lower Quality Audits at the Engagement Partner Level

Using data from Taiwan, where a long history of engagement partner performance is available, we examine the reputational consequences that engagement partners suffer for having a recent history of past audit failures. We find that when an engagement partner's recent history of poor audit quality is observable to audit clients, they are more likely to lose clients and are less likely to be reassigned to serve other clients of the audit firm over the next five years. We also find that these engagement partners are more likely to stop serving as engagement partners in the next five years, and those who remain in client service experience a re-allocation of assignments (both as a lead engagement partner and as a concurring (second) partner). Additionally, the clients that these partners continue to serve exhibit increased risk. Overall, our findings suggest that an engagement partner's prior audit quality influences clients' and audit firms' engagement partner selection. The results suggest that audit clients can obtain valuable information from partner name disclosures and that audit firms signal a commitment to quality by managing engagement partner assignments