Does Untainted Co-signing Experience with Audit Partners Improve Audit Quality?

Hu et al. (2022) find that sanctioned auditors and auditors who co-sign with them provide low-quality audits. Excluding such tainted auditors, we measure a new type of audit-related experience—a lead partner’s untainted co-signing experience with other partners in the past five years—and investigate its effect on audit quality. We capitalize on the availability of data on publicly listed companies in Taiwan, where it has been required since 1983 to disclose the identity of two signing partners belonging to the same audit firm, thus allowing a long period of data to be tracked. We find a positive association between untainted co-signing experience and audit quality, proxied by modified audit opinions, absolute discretionary current accruals, and bank loan spreads. Such an effect appears mainly for junior partners co-signing with senior partners, and is more pronounced for clients with highly complex audits than for clients with relatively incomplex audits. Further, we find that the effect remains after we exclude observations where the lead partner’s untainted co-signing experience contains at least one industry specialist partner (a master); that such a positive effect is significantly reduced or eliminated for subsamples of tainted partners; that a lead partner’s colleague experience (i.e., with partners who are in the same audit firm but never co-sign with the lead partner) does not produce a positive effect on audit quality; and a review partner’s untainted cooperative experience produces only a limited positive effect on audit quality. These findings expand partner-level research to new angles of analysis.