The Effect of Joint Auditor Pair On Timely Loss Recognition: Evidence From Impairment Tests
Casta, Jean-François; Lobo, Gerald; Paugam, Luc; Zhang, Dana (2013), The Effect of Joint Auditor Pair On Timely Loss Recognition: Evidence From Impairment Tests, 36th European Accounting Association annual congress, 2013, Paris, FRANCE
TypeCommunication / Conférence
Conference title36th European Accounting Association annual congress
MetadataShow full item record
Abstract (EN)As some regulators view joint audit as a way to enhance audit quality, French law already requires two (joint) auditors. We examine the impact of auditor pairs on a key mechanism ensuring timely loss recognition: impairment tests. Impairment tests rely on unverifiable fair value estimates and are oftenmanipulated by managers. In a simple game theory model, we assume that Big 4 auditors face higher reputation and litigation costs than non-Big 4. We demonstrate that pairs of Big 4 auditors are likely to lead to the prisoner’s dilemma solution, according to which no auditor takes corrective actions.Conversely, pairs of Big 4 and non-Big 4 auditors increase Big 4’s incentives to force firms to book timely impairments. From a sample of French listed firms(SBF 120) from 2006 to 2009, we provide evidence that: (1) Big 4–Big 4 auditor pairs book more untimely impairments than othercombinations; (2) Big4–Big 4 auditor pairs manage more impairment tests’ transparency ; (3) Big 4–Big 4 auditor pairs do not significantly improve earnings quality as compared to Big 4–non-Big 4 pairs.
Subjects / KeywordsVérification comptable
JELM42 - Auditing
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Lobo, Gerald J.; Paugam, Luc; Zhang, Dana; Casta, Jean-François (2017) Article accepté pour publication ou publié
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