The consequences of protecting audit partners’ personal assets from the threat of liability

Clive Lennox (NTU)  and Bing Li (City U HK)

Journal of Accounting and Economics 54(2012) 154–173

• This study investigates the audit firm’s decision to protect its partners’ personal assets by becoming a limited liability partnership (LLP).
• We find that the likelihood of an audit firm switching from unlimited to limited liability is increasing in its size and exposure to litigation risk.We find no evidence that audit firms supply lower audit quality,lose market share,or charge lower audit fees after they become LLPs.
•  However, the mix of public and private clients in audit firms’ portfolios exhibits a significant shift toward riskier publicly traded companies after the switch to limited liability.

Do Individual Auditors Affect Audit Quality?

Evidence from Archival Data

Ferdinand A. Gul

Monash University Sunway Campus

Donghui Wu

The Chinese University of Hong Kong

Zhifeng Yang

City University of Hong Kong

THE ACCOUNTING REVIEW 

Vol. 88, No. 6 2013

pp. 1993–2023

• We examine whether and how individual auditors affect audit outcomes using a large set of archival Chinese data. 
• We analyze approximately 800 individual auditors and find that they exhibit significant variation in audit quality. The effects that individual auditors have on audit quality are both economically and statistically significant, and are pronounced in both large and small audit firms. 
• We also find that the individual auditor effects on audit quality can be partially explained by auditor characteristics, such as educational background, Big N audit firm experience, rank in the audit firm, and political affiliation. 
• Our findings highlight the importance of scrutinizing and understanding audit quality at the individual auditor level