Does Audit Partner Style Affect Financial Reporting Outcomes? Evidence from U.S. Bank Holding Companies

Publication Date



This paper uses confidential data on audit partner names from the regulatory filings of bank
holding companies (BHC) to investigate audit partner heterogeneity or style. We construct an audit
partner-BHC matched panel data set to track partners across different BHCs over time. Using
provisions and allowance as our primary measures, we employ two empirical approaches to test
whether partner style is evident in loan loss provisioning. The first approach adds audit partner
fixed effects to loan loss provisioning models to test for improvement in the explanatory power of
the model. The second approach tests whether loan loss provisioning outcomes vary over the
course of an audit partner’s tenure. Since our data spans an extended period (2006 to 2019), we
are also able to examine a period that is not affected by the financial crisis period, as the crisis
period not only experienced a large increase in provisions and allowance but also an increase in
audit partner turnover due to implementation of mandatory rotation for U.S. companies. We do
not find that adding audit partner fixed effects results in a significant increase in the explanatory
power of the model except in the sub-sample of BHCs audited by small audit firms. Similarly, we
find some evidence of an increase in allowance in the latter years of tenure. However, none of the
results are significant in the post-crisis period. Overall, our results suggest that the audit firms'
internal procedures, processes, and quality control mechanisms produce consistency in audits
between partners and across years, constraining idiosyncratic partner styles.

Document Type



auditing, banking, audit partner names, audit engagement, PCAOB, audit partner tenure, auditor rotation.






SMU Cox: Accounting (Topic)