Former audit partners on audit committees: Implications for Russian corporate governance

Abstract

The Moscow Exchange in conjunction with the Organization for Economic Cooperation and Development (OECD) continues to address improvements in Russian corporate governance by conducting annual roundtables (OECD, 2017). My research relates to corporate governance provided by audit committees. I examine relationships between former audit partner (FAP) audit committee members and auditors, via a network similar to the interlocking directorate. Using a dataset of U.S. auditor dismissals, I construct unique network variables measuring the relational ties between FAP audit committees and auditors. I find some evidence suggesting ties created by former audit partners may increase auditor switching possibly indicating impaired auditor independence. This outcome suggests implications for Russian corporate governance because it is likely Russian Boards of Directors would experience similar circumstances as their U.S. counterparts. As the Moscow Exchange continues its partnership with the OECD to improve corporate governance, audit quality and auditor independence should be considered in the dialogue.