Employing string similarity metrics of partners to estimate audit team continuity: determinant and its effects on audit outcomes and pricing
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 3 February 2023
Issue publication date: 14 April 2023
Abstract
Purpose
Partners are responsible for allocating audit tasks and facilitating knowledge sharing among team members. This study considers changes in the composition of partners to proxy for the continuity of the audit team. This study examines the effect of audit team continuity on audit outcomes (audit quality and report lags), pricing and its determinant (lead partner experience), which have not been thoroughly examined in previous studies.
Design/methodology/approach
This study employs string similarity metrics to measure audit team continuity. The study employs multivariate panel data regression empirical models to estimate a sample of 26,007 firm-years of listed Japanese companies from 2008 to 2019.
Findings
The study reveals that audit team continuity is negatively associated with audit fees, regardless of the auditor’s size. This finding contributes to the existing literature by showing that audit team continuity represents one of the determinant factors of audit fee. For clients of large audit firms, companies with higher (lower) audit team continuity issue audit reports in less (more) time. The experience of lead partners is a strong predictor of audit team continuity, irrespective of audit firm size. Audit quality is not associated with audit team continuity for either large or small audit firms.
Originality/value
This study proposes and examines audit team continuity measures that employ string similarity metrics to quantify changes in the composition of partners in consecutive audit engagements. Audit team continuity expands upon the tenure of individual audit partners, which is commonly used in prior literature as a measure of client–partner relationships.
Keywords
Acknowledgements
The authors would like to thank the participants of the 2021 European Accounting Association Virtual Congress, the 2021 NUCB Research Workshop, the 80th Conference of the Japan Accounting Association 2021, and the Korean Accounting Association 2022 International Session for their valuable comments on the manuscript.
Citation
Frendy and Takeda, F. (2023), "Employing string similarity metrics of partners to estimate audit team continuity: determinant and its effects on audit outcomes and pricing", Journal of Accounting Literature, Vol. 45 No. 2, pp. 314-339. https://doi.org/10.1108/JAL-02-2022-0026
Publisher
:Emerald Publishing Limited
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