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    The Effect of Joint Auditor Pair Composition on Audit...
    research summary posted June 26, 2017 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 11.07 Attempts to Measure Audit Quality, 15.0 International Matters 
    The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests
    Practical Implications:

    Regulators are constantly trying to find ways to improve audit quality. The findings in this paper are useful to policymakers in understanding the benefits of a joint audit. It is also useful to companies and investors who are interested in what audit pairs provide a superior audit. 


    Lobo, Gerald J., L. Paugam, D. Zhang, and J. Francois Casta. 2017. “The Effect of Joint Auditor Pair Composition on Audit Quality: Evidence from Impairment Tests”. Contemporary Accounting Research 34.1 (2017): 118.

    Purpose of the Study:

    Regulators across the globe have been trying to find ways to increase audit quality, and one idea that has been proposed is requiring joint audits. Currently, joint audits are mandatory in France for any company preparing consolidated financial statements. This paper examines whether the auditor pair composition is related to audit quality. The three auditor compositions are Big4-Big 4 (BB), Big4-non-Big 4 (BS), and non-Big 4 non-Big 4 (SS). For the purposes of this study only BB and BS pairs are analyzed. The impairment of goodwill is examined to measure audit quality. This is due to management’s large discretion for the impairment of goodwill. The way auditor’s handle the impairment of goodwill often highlights how well they are maintaining objectivity and transparency of the auditor’s tests. It is important to note in BS pairs the Big 4 firm is most likely to be the one performing the impairment test.

    Design/Method/ Approach:

    The sample includes French firms from the SBF 250 index for the years 2006-2009. There were a total of 551 observations for the BB and BS pairs. The authors examined how the auditor pair type affected recognition of economic impairment and transparency of impairment-related disclosures.


    Overall, the authors find that BS audit pairs are associated with having a higher audit quality when compared to BB audit pairs. The authors believe this is due to a better coordination and development of a hierarchy in BS audit pairs and a higher incentive for better audit quality from the Big 4 firm in BS audit pairs. This is because the Big 4 firm in BS audit pairs are at a higher risk of reputational harm, than if they are paired with another Big 4 auditor in a BB audit pair.

    Specifically, the authors find the following:

    • In situations where low-performance indicators are present, BS audit pairs are more likely to recognize an impairment loss and recognize a larger impairment loss than BB pairs.
    • BS audit pairs are more likely to be more transparent in the disclosure of impairment for goodwill. On the other hand, BB pairs are more likely to show reductions in impairment-related disclosures when they book an impairment.
    Audit Quality & Quality Control, Audit Team Composition, International Matters
    Attempts to Measure Audit Quality