Audit partner-board interlocks and audit quality (conference proceeding)

Abstract

The objective of this study is to examine whether the network between client firms as well as network between audit partner and client firms is associated with audit quality. In doing so, first, we examine the effect of board (audit committee interlocks) on audit quality. Interlocks are formed when a board member (audit committee member) of one firm is also a board member (audit committee member) of another firm. Second, we include audit partner in the interlocks and examine whether audit partner-board (audit committee) interlocks affect audit quality. We theorize that interlocks serve as channels of information flow enabling the exchange of accounting information and thus improving the quality of financial accounting outcomes. Using a sample of Finnish listed companies for a period 2007-2011, we find no association between board interlocks and audit quality. However, when the interlocks are formed via audit committee member, we find a positive association. We find a similar pattern for audit partner-board (audit committee) interlocks. Our empirical findings suggest that audit quality is better for the firms with interlocking audit committee members in the network of board members and audit partner. However, the results are not significant for the firms that are involved in the network of board members and audit partner. Our results lend support to the notion that audit committee members are key players and are responsible for the quality of accounting figures. <br /><br />