Audit partner quality, audit opinions and restatements: evidence from Iran

We study whether audit partner quality in the preceding year plays a role in restatements and audit opinions in the current year. Audit failure rate is used as a measure of audit partner quality. A dataset of Iranian listed firms consisting of 1188 observations for the years 2012–2017 is used as the sample. Multivariate analysis reveals that audit partner quality is negatively associated with restatements and issuance of a clean opinion. In addition, this negative association is stronger for the engagement partner (i.e., the partner who actually carries out the audits) than for the review partner (i.e., the partner who reviews the audits). Several sensitivity tests are employed, and the results do not change significantly. Such findings go against the “isolated-incident” argument but support the “causal” argument and suggest that governing bodies play a key role in auditor selection, changes and fees should pay more attention to audit quality at the partner level in their decisions.