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Because U.S. Big 4 audit quality is inconsistent between office locations within the same firm, the Public Company Accounting Oversight Board (PCAOB) has maintained a standing Audit Quality Indicator Project designed to assist academics, practitioners, and its own inspection teams in identifying specific areas in which high audit quality may fail to be achieved. While many of the PCAOB audit quality indicators have been examined in prior research, information regarding the personnel comprising each office audit department has been difficult to glean because personnel data is not publicly disclosed by the Big 4.
This study examines certain personnel inputs and audit quality; specifically, the associations between (1) audit human capital and audit quality, (2) audit personnel experience and audit quality, and (3) audit workload compression and audit quality, for all of the Big 4 offices in the United States. Big 4 offices with the most appropriate quantity and quality of human capital should be better equipped to provide high audit quality. Similarly, Big 4 offices with more experienced auditors should provide high audit quality based on individual personal experiences and job-acquired knowledge. Finally, Big 4 offices with less workload volume and less busy-season time compression issues should provide high audit quality due to auditor specializations and more available human capital resources. However, among each of these three associations, audit personnel inputs may not affect audit quality equally at all staff levels.
In an analysis of audit human capital and audit quality, this study finds that offices with greater amounts of total senior-level auditors generally have fewer restatements and are more willing to report going concern opinion modifications, yet also report fewer material internal control weaknesses. In an analysis of audit personnel experience and audit quality, this study finds that experienced audit managers are associated with fewer restatements and experienced partners report more instances of material internal control deficiencies. However, this study finds in some instances that long-tenured partners and principals at smaller offices are associated with indicators of poor audit quality. This study also finds mixed results on the impact of education at various staffing levels, and strongly suggests that staffing proportions are key to audit efficiency and effectiveness. In an analysis of audit workload compression and audit quality, this study find that audit quality may be negatively impacted by the effect of busy-season workload compression, although this seems to occur more often at the manager level and above. In supplementary analysis, this study finds evidence that audit departments with greater proportions of females perform higher quality audit engagements. Also in supplementary analysis, this study finds that the proximity of an audit office to an SEC regional office increases audit quality; however, this effect is weakened during periods of workload compression.
Gatlin, Jacob, "Big 4 Office Personnel and Audit Quality" (2019). PhD in Business Administration Dissertations. 11.
Available for download on Tuesday, July 16, 2024