What Drives Managers’ Preferences for An Audit Partner? Experimental Evidence on Audit Partner Selection

We conduct a 2x2x2 between-subjects experiment with over 200 accounting and finance managers and executives to examine how perceptions of partner fit in terms of professional experience and prior knowledge of the partner vis-à-vis company preferences affect recommendations of the audit partner. To investigate our research question, we vary the audit partner's experience and the social tie between the partner and manager under two different company preferences for a partner, either technical proficiency or value-add. We find that managers recommend audit partners with prior Big 4 experience more than those without when the company prefers an auditor with technical expertise. In addition, managers are less likely to recommend a partner with whom they have a social tie, except when the company prefers a partner with technical proficiency and the audit partner has Big 4 experience. Complementing existing archival literature that suggests social ties between auditors and clients can deteriorate audit quality, our findings suggest that management is concerned with partner objectivity in the presence of a social tie unless the company prefers a partner with technical expertise. In the condition when the company prefers technical expertise, managers' focus on how the partner's experience “fits” the company's preference may impede them from responding to the potential objectivity concerns that come with a social tie. Our findings should be of interest to audit firms, audit committees, researchers, and audit regulators