Partner–client relationship and auditor switches

Abstract

This study investigates the effect of a partner–client relationship on auditor switches. We find that a non-signing partner, especially one who is ‘job-hopping,’ has a significant effect on auditor switches. Specifically, if a partner who was the signatory of a public company’s annual report no longer signs for the accounting firm or leaves the firm, the public company that he or she signed for tends to change its auditor as well. When the job-hopping partner jumps to a new accounting firm with a certificate to service public companies, the probability of an auditor switch is the highest. The former auditee (or ‘client’ hereafter) can follow the partner to the new accounting firm to retain the special partner–client relationship. Furthermore, we consider that there are usually two signing partners with different tenures for a client’s annual report. Empirical results show that the non-signing partner can more significantly affect a client’s auditor switch when he or she is the one with the comparatively longer tenure. These results imply that the partner–client relationship is valuable to accounting firms and will help with client retention.