Client Relationship-Building and Audit Quality

Posted: 18 Aug 2017 Last revised: 4 Jul 2023

See all articles by Joshua Ronen

Joshua Ronen

New York University (NYU) - Department of Accounting

Minlei Ye

University of Toronto

Date Written: July 3, 2023

Abstract

This paper presents a model of auditor-client relationship-building (RB). We find that the relation between RB and audit effort is non-monotonic, i.e., it can improve or impair audit effort. On one hand, RB improves the usefulness of exerting effort and the auditor is then motivated to work harder. On the other hand, RB improves the precision of the signal received by the auditor and reduces her expected liability, which reduces her incentive to exert effort. Moreover, existing literature suggests that quasi-rents arising from long auditor tenure compromise auditor independence. In contrast to this conventional wisdom, this paper shows a positive effect of quasi-rents resulting from relationship-building on auditor independence. This is the first study analyzing the impact of client relationship-building initiated by auditors on audit quality. It enhances our understanding of the impact of RB on audit quality.

Keywords: client relationship building; audit effort; audit reporting quality

JEL Classification: M42; M48

Suggested Citation

Ronen, Joshua and Ye, Minlei, Client Relationship-Building and Audit Quality (July 3, 2023). 2018 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=3021279 or http://dx.doi.org/10.2139/ssrn.3021279

Joshua Ronen

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street, Suite 400
Suite 10-180
New York, NY 10012-1118
United States
212-998-4144 (Phone)
212-995-4599 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jronen/

Minlei Ye (Contact Author)

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,608
PlumX Metrics