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"The Importance of Partner Narcissism to Audit Quality" by Dr. Zili Zhuang

Publishing Date: 08/04/2018      (Last Update: 08/04/2018)

Accounting & Law Seminar

Speaker:

  • Dr. Zili Zhuang
    Associate Professor
    School of Accountancy, CUHK Business School
    The Chinese University of Hong Kong

 

Event Details

DateWednesday, 18 April 2018
Time2:30pm - 4:00pm
Venue1303, K.K. Leung Bldg

Abstract:

Relying on the size of partner signatures in audit reports to measure their narcissism, we find that actual and perceived audit quality rises with partner narcissism. Reinforcing causal inference, we show that changes in audit quality are positively associated with changes in partner narcissism stemming from mandatory auditor rotation, and that audit quality does not reversely affect partner signature size. We also find that the impact of auditor narcissism on audit quality is more pronounced when the client is larger and when the auditor shares school ties with client executives, although it does not vary with engagement complexity. Collectively, this evidence implies that partner narcissism improves audit quality mainly through increased auditor independence, rather than auditor competence. In additional results consistent with expectations, we generally find that the role that partner narcissism plays in audit quality is smaller in Big Four audit firms known to have robust quality control structures and more standardized audit methodologies, which narrows the scope for partner-level characteristics to matter. We also document that although partner narcissism has no perceptible impact on the incidence of Type I (false positive) going concern reporting errors, it reduces the probability of making a Type II (false negative) error, corroborating that more narcissistic partners are less likely to sacrifice their independence.