​Looking the Part: Does Audit Committee Expertise Reduce the Influence of Superficial Appearances in Auditor Selection and Compensation Decisions?

Although prior research has claimed that audit committees with more expertise secure better auditors and enjoy higher quality earnings, a deeper understanding of this premise compels consideration of how less-expert audit committees choose auditors if indeed they are less sensitive to auditor quality. We examine the premise that less-expert audit committees are more likely to be influenced by auditors’ superficial characteristics, which we proxy by obtaining ratings of audit partners’ physical appearances from independent raters. We find that audit committees with fewer financial experts tend to engage more attractive audit partners and pay attractive audit partners a differential fee premium. These findings support the view that financial expertise benefits audit committees by enabling selection decisions that rely less on superficial credentials such as whether an audit partner “looks the part” and, by implication, rely more on the substantive auditor credentials that only expertise can differentiate.

 

Professor Steven J. Kachelmeier holds the Randal B. McDonald Chair in Accounting at the McCombs School of Business, University of Texas at Austin, where he teaches auditing and accounting. He has been at UT-Austin since 1988, upon earning his doctorate from the University of Florida. Professor Kachelmeier has published articles in several top academic journals, including The Accounting Review, Journal of Accounting Research, The American Economic Review, Review of Accounting Studies, and Contemporary Accounting Research, among others. His research applies the methods of experimental economics to information and incentive issues in auditing, financial accounting, and management accounting settings. From 2008 to 2011, Professor Kachelmeier served as Senior Editor of The Accounting Review, the flagship academic association journal in the accounting discipline. From 2012 to 2015, Professor Kachelmeier served as the Vice President for Research and Publications on the Board of Directors of the American Accounting Association.

 

For further information and enquiries, please contact Adeline Tang at amytang@ntu.edu.sg.

 

Nanyang Business School, Nanyang Technological University, Block S3, 50 Nanyang Avenue, Singapore 639798 https://www.ntu.edu.sg/business 

 

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