As a part of their risk management strategy, large audit firms have established a second partner review process during client screening. It is unclear, however, whether review partners are biased by the engagement risk assessment that is provided to them by a contact partner as a part of this process. Of particular interest are cases where the contact partner's engagement risk assessment is overly favorable when compared to the underlying evidence. We report the results of an experiment where approximately one‐half of the review partners received an engagement risk assessment that was overly favorable when compared to the underlying evidence, while the other half of the review partners received an assessment that was more consistent with the client data provided. We examined the effect of this manipulated difference on review partner engagement risk assessments, acceptance judgments, fee judgments, and justification activity.
Results from a sample of 78 audit partners reveal that, on average, they were not influenced by differences in the contact partner's assessment when rendering their own engagement risk assessments. However, the acceptance and fee judgments of the partners who received overly favorable risk assessments were more conservative than those of the partners who received a more consistent assessment. In addition, justification activity was greater for the group who received overly favorable judgments. These results imply that a second partner review appears to aid auditing firms in avoiding overly risky clients during the acceptance process.
