Do Alma Mater Ties Between the Auditor and Audit Committee Affect Audit Quality? Divesh S. Sharma, Madhukar K. Singh, and Arvind Patel
Contemporary Accounting Research Vol. 39, No. 1 (March 2022), pp. 371-403
Overview We examine whether ties between an auditor and the audit committee (AC) based on their former employment at an audit firm are associated with the allocation of significantly more nonaudit services (NAS) to the auditor. We also examine whether the resulting NAS affect audit quality. Predicating our hypotheses on social ties theory, we find that firms with an audit-firm alumn on the AC acquire more NAS from the alumn’s former employer. Further, this association strengthens with the alumn’s tenure, and based on various measures, audit quality suffers. Collectively, our results suggest that audit-firm alma mater ties between the AC and auditor engender economic ties that adversely affect audit quality. Our study provides new evidence on the channels that affect audit quality and raises questions about the composition of the AC, auditor-provided NAS, and client assignment to engagement partners.
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