Individual Auditor Turnover and Audit Quality – Large Sample Evidence from U.S. Audit Offices

Abstract

We examine the relationship between audit quality and office-level auditor turnover. Using resumes of over 106,000 Big 4 auditors, we find that audit offices with higher turnover have a greater likelihood of client annual report restatements and are more likely to issue incorrect audit opinions on internal controls over financial reporting. These detrimental effects are more pronounced when the lost auditors are more experienced, when the office faces tighter human capital constraints, and are primarily attributable to voluntary turnover. Further, such negative effects are borne mostly by complex clients and intangible-intensive clients but are weakened for clients with greater product similarity to the client portfolio of the audit office. Last, the impact of office-level turnover on audit quality persists after controlling for firm-level turnover. Our findings inform the current policy debate on whether and to what extent audit firms should disclose auditor turnover as a potential indicator of audit quality.

Keywords: Auditor turnover, audit quality, audit quality indicators, financial restatements, audit fees