Effects of audit partners on clients’ business risk disclosure

Hironori Fukukawa and Hyonok Kim

Accounting and Business Research, 2017, vol. 47, issue 7, 780-809

Abstract: We empirically investigate audit engagement partners’ involvement in business risk disclosure. Specifically, we examine whether the quality of business risk disclosure is influenced by engagement partner tenure and knowledge. We also examine whether the effects of partner tenure and knowledge are similar for Big 4 audit firms and non-Big 4 firms. Since fiscal year 2003, listed companies in Japan have been required to disclose business risk information. Although the business risk information is not audited, auditors concerned about their audit quality may seek to influence clients’ business risk disclosure practices. Giving advice to management on the narrative business risk disclosure can contribute to improving the perceived value of the auditor’s services which can be a competitive advantage. Using a sample of Japanese listed companies from 2003 to 2010, we find that if the engagement partners’ tenure is shorter, a company discloses more business risk information and the disclosure is more detailed. Furthermore, companies with audit partners who have a larger number of client engagements disclose larger amounts of business risk information in more detail. However, the engagement partner effects are mitigated if they belong to a Big 4 firm.

Date: 2017
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/00014788.2017.1299619

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