What is the Relationship Between Audit Partner Busyness and Audit Quality?

Abstract

Contemporaneous studies generally find a negative relationship between audit partner busyness (APB), measured as the number of clients in an audit partner's portfolio, and audit quality. Their argument is that a busy partner does not devote sufficient time to properly audit his average client. Contrary to these studies, we argue that when busyness is optimally chosen by the partner, in equilibrium, there is no causal relationship between APB and audit quality. Using Australian data for the 1999-2010 period, we show that APB is not reliably linked to audit quality, consistent with this equilibrium theory. We argue that causality can be ascribed to the APB-audit quality relationship when accounting scandals exogenously shocked the Australian audit market during the 2002-04 period and APB likely deviated from optimum levels. Supporting this disequilibrium view, we find that higher APB reduces a partner's propensity to issue first-time going-concern opinions during this period. Our evidence highlights the importance of the equilibrium condition in testing empirical associations between audit outcomes and endogenous auditor attributes, and shows that the detrimental effect of APB on audit quality is not as pervasive as contemporaneous studies suggest.