Articles

The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests

G. LOBO, L. PAUGAM, D. ZHANG, J.-F. CASTA

Contemporary Accounting Research

Spring 2017, vol. 34, n°1, pp.118-153

Departments: Accounting & Management Control, GREGHEC (CNRS)

Keywords: Joint Audits, Audit Quality, Auditor Independence, Impairment Testing, Conservatism


Using a sample of firms from France, where the law requires the use of two auditors, we study the effect of auditor pair composition on audit quality by examining a specific account, goodwill impairment. We document that firms audited by a Big 4–non-Big 4 auditor pair (BS) are more likely to book an impairment and book a larger impairment than firms audited by a Big 4–Big 4 auditor pair (BB) when low performance indicators suggest a greater likelihood of impairment. Moreover, firms audited by a BB pair reduce impairment disclosures when they book impairments, while firms audited by a BS pair do not, suggesting lower transparency for firms audited by a BB pair. Our results inform investors and firms in mandatory joint audit regimes, as well as regulators who are considering requiring joint audits.


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