A Fresh Look or Resource Constraints? Examining Changes to Component Auditor Use Following Audit Partner Changes

Abstract

Audit planning is a critical phase of the audit process, yet remains largely unobservable in archival research. This paper examines whether new audit partners make different planning decisions, focusing specifically on the use of component auditors in multinational audits. For U.S. multinationals, audit partners must determine whether and to what extent audit procedures, and therefore component auditors, are needed in foreign locations. While audit firms strive for continuity during transitions, incoming partners may provide a “fresh look” at prior audit plans or face resource constraints and learning curves as they acquire client and component auditor-specific knowledge. We find that partners significantly decrease the number of component auditors used in their first year on an engagement. This decrease is magnified when the audit partner faces fee pressure and reverses over the partner’s tenure on the engagement, which is consistent with resource constraints and the gradual acquisition of client knowledge. The result is concentrated among small component auditors, where the partner has greater discretion. While prior literature demonstrates increased hours following audit partner changes, we provide insight into a specific, important, and complex planning decision made by new audit partners.