AUDIT PARTNERS' INDIVIDUAL RISK PREFERENCES IN CLIENT RETENTION DECISIONS

The purpose of a study is to test whether audit partners ' individual risk preferences with respect to business risk evaluations affect their evaluations to retain or to terminate an existing, risky client. Findings indicate partners' individual risk preferences have a significant influence on their client retention assessments. Partners who are risk averse (seeking) are more likely to assess a lower (higher) likelihood of retaining a risky audit client. Practically, our findings suggest that risk seeking tendencies inherent in potential loss situations should be explicitly recognized by audit partners and audit firm management committees so that this human tendency toward risk seeking in potential loss situations can be managed appropriately. Audit researchers should extend this research by investigating other business risk contexts to determine how risk seeking by audit partners affects their decision making.