The Relative Importance of Auditor Characteristics versus Client Factors in Explaining Audit Quality

UK listed firms are used to investigate if auditor attributes (fixed effects for audit firms, audit offices, and audit partners) add incrementally to baseline models with client controls in explaining audit outcomes (earnings quality and going concern reports). We document that accounting firm fixed effects add significantly to baseline models. To the extent an accounting firm can standardize its audits, there should be no differences across engagements. However, we find significant inter-office differences, and also significant inter-partner differences within offices. R-square analyses, hierarchical linear models, LASSO regressions, and R-square decomposition analyses all show that partners are the most important auditor-related characteristic. To better understand the cause of partner variation, we test a set of partner demographic variables (in lieu of partner fixed effects), but we find that they explain little variation, once we control for firm and office differences. We conclude that partner variation is important in explaining audit outcomes, but understanding the causes requires going beyond existing publicly-available demographic data.