TY - JOUR
T1 - The effect of individual auditor quality on audit outcomes
T2 - opening the black box of audit quality
AU - Stice, Derrald
AU - Stice, Han
AU - White, Roger
N1 - Funding Information:
The authors thank two anonymous reviewers, Thomas Bourveau, Nerissa Brown, Jian Cao (editor), Mark DeFond, Joseph Gerakos, Mingyi Hung, Steve Kaplan, Robert Knechel, Miguel Minutti-Meza, Nemit Shroff, Kay Stice, Florin Vasvari, Devin Williams and Donghui Wu for helpful comments and suggestions. We appreciate helpful comments and suggestions from workshop participants at HKUST and Chinese University of Hong Kong.JEL classification : G01, M4, M49
Publisher Copyright:
© 2022, Emerald Publishing Limited.
PY - 2022/10/12
Y1 - 2022/10/12
N2 - Purpose: This study aims to examine the effect of individual auditor quality (below the partner level) on overall audit quality. Design/methodology/approach: We aggregate audit employee-level individual performance evaluations to create a measure of auditor quality at the office level. Findings: We find that high-quality audit offices are associated with a lower likelihood of client restatement, fewer client abnormal accruals and a higher likelihood of a client receiving a going concern opinion. We partition employees into low, medium and high level, based on job title, to investigate which employee levels drive these results. We find that the restatement results are driven by high quality high-level employees (Senior Managers/Directors), whereas the going concern results are driven by high quality low-level employees (Seniors). Furthermore, we find evidence that high-quality audit teams are associated with all aspects of audit quality and the magnitude of these team effects are much larger than those of the effects for any individual employee type. Originality/value: Our findings are consistent with higher-level auditors preventing the most serious financial statement deficiencies, low-level employees contributing to audit firm independence and overall team quality creating synergy which has the strongest effect on all aspects of audit quality. These insights based on individual auditor evaluations are new to the literature. Overall, our empirical results suggest that individual auditor quality is associated with higher quality audits and that employees at all levels affect audit outcomes.
AB - Purpose: This study aims to examine the effect of individual auditor quality (below the partner level) on overall audit quality. Design/methodology/approach: We aggregate audit employee-level individual performance evaluations to create a measure of auditor quality at the office level. Findings: We find that high-quality audit offices are associated with a lower likelihood of client restatement, fewer client abnormal accruals and a higher likelihood of a client receiving a going concern opinion. We partition employees into low, medium and high level, based on job title, to investigate which employee levels drive these results. We find that the restatement results are driven by high quality high-level employees (Senior Managers/Directors), whereas the going concern results are driven by high quality low-level employees (Seniors). Furthermore, we find evidence that high-quality audit teams are associated with all aspects of audit quality and the magnitude of these team effects are much larger than those of the effects for any individual employee type. Originality/value: Our findings are consistent with higher-level auditors preventing the most serious financial statement deficiencies, low-level employees contributing to audit firm independence and overall team quality creating synergy which has the strongest effect on all aspects of audit quality. These insights based on individual auditor evaluations are new to the literature. Overall, our empirical results suggest that individual auditor quality is associated with higher quality audits and that employees at all levels affect audit outcomes.
KW - Audit quality
KW - Big N auditors
KW - Employee performance evaluations
KW - Individual auditor
KW - Restatements
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U2 - 10.1108/MAJ-07-2021-3235
DO - 10.1108/MAJ-07-2021-3235
M3 - Article
AN - SCOPUS:85130184550
SN - 0268-6902
VL - 37
SP - 937
EP - 966
JO - Managerial Auditing Journal
JF - Managerial Auditing Journal
IS - 8
ER -