Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 15, 2022 erstellt
Description:
This paper examines how the effect of the audit partner on accounting estimates varies across the tenure of a partner/client relationship. Using confidential data on audit partner identity in the banking industry, we find that banks systematically report higher loan loss reserves (LLRs) at the beginning of audit partner/client relationships relative to later years. We also find that the estimate of the LLR is more accurate early in the partner/client relationship. Collectively, these results suggest that audit partners enforce higher quality accounting estimates in the early years of the relationship relative to later years. Additional analyses reveal that the difference in the partner effect in the early years relative to the later years is limited to a partner’s initial engagement with a client and does not exist for boomerang partners. While the magnitude of the LLR early in the partner/client relationship is higher for public compared to private banks, where regulatory scrutiny and reputational risks are higher, we do not find evidence of significant differences in the quality of the LLR estimate. Our results suggest that the effect of audit partners on accounting estimates varies across the tenure of partner/client relationships