Graduation Year

2023

Document Type

Dissertation

Degree

Ph.D.

Degree Name

Doctor of Philosophy (Ph.D.)

Degree Granting Department

School of Accountancy

Major Professor

Dahlia Robinson, Ph.D.

Committee Member

Thomas Smith, Ph.D.

Committee Member

Ninon Sutton, Ph.D.

Committee Member

Carlos Jimenez Angueira , Ph.D.

Keywords

Audit Engagement Partner Quality, Risk Factor Disclosures, Item 1A, Item 7, Tone or Sentiment Analysis, Specific Risk Factor Disclosure, Accounting Conservatism

Abstract

I have two essays in my dissertation. Essay 1 examines whether and how individual audit engagement partner quality is associated with client firms’ risk factor disclosures (Items 1A and 7) in the annual reports (10-K filings). Specifically, I investigate whether engagement partner quality is associated with the tone and sentiment in the risk factor disclosures, as well as the disclosure of financial and tax-related risk factors. I find that clients with high-quality engagement partners use an overall negative tone in the narrative disclosures in Item 1A and Item 7. Further, I find that high-quality engagement partners are specifically associated with a “negative, litigious, or uncertain” tone, suggesting that high-quality engagement partners constrain management’s tendency to use overly positive tone in the risk disclosures. Finally, I find that engagement partner quality is positively and significantly associated with financial and tax-related risk factor disclosures. These results shed light on the critical role that audit partners play in the formation process of client firms’ risk factor disclosures in 10-K filings.

Essay 2 aims to explore the link between audit engagement partner quality and accounting conservatism. The primary focus is to analyze how the quality of the audit engagement partner influences their clients' reporting of unconditional and conditional conservatism. Results suggest that there is a positive and significant association between audit engagement partner quality and unconditional conservatism and a negative and significant association between audit engagement partner quality and conditional conservatism. These results are further supported by additional tests that use alternative proxies of unconditional conservatism. Overall, this study underscores the crucial role of auditors, at the partner level, in shaping their clients' level of conservatism in annual reports.

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