Auditor-in-Charge Characteristics and Going Concern Reporting Behavior: Does Number of Assignments, Age and Client Fee Dependence Matter?

Abstract

We examine the impact of auditor-in-charge characteristics on audit quality using the propensity to issue a going concern paragraph as the measure of audit quality. Our sample consists of 1202 Swedish SMEs that filed for bankruptcy during October 2008 and September 2009. All companies in Sweden are required to be audited independent of their size. We report the following main findings. First, our results show a negative association between the number of audit assignments held by the auditor-in-charge and audit quality. This result is consistent with concerns raised by oversight bodies and practitioners and one explanation to the result is that some auditors specialize on large amounts of low quality audits at markets with statutory audits. Second, we study the association between age, experience and the likelihood of a going concern opinion. Consistent with theories about the diminishing role of career concerns as the auditor approaches the retirement age, we find that the age of the auditor is negatively associated with audit quality. We do not find any support for an experience effect. We also find that non-Big 4 auditors are less likely to issue a going concern opinion if the sales of the client are large in comparison to the aggregate sales of all clients of the auditor-in-charge. These results show that undue fee dependence from a single important client has a negative impact on audit quality.