Accounting Personnel Quality, Audit Risk, and Auditor Responses

Gul, F. A., B. Lin, Z. Yang, M. Zhang, and H. Zhu. 2024. Accounting personnel quality, audit risk, and auditor responses. Auditing: A Journal of Practice & Theory 43(1), 125-149.

48 Pages Posted: 11 Sep 2020 Last revised: 14 Mar 2024

See all articles by Ferdinand A Gul

Ferdinand A Gul

Deakin University

Bin Lin

Sun Yat-sen University (SYSU)

Zhifeng Yang

Stony Brook University

Min Zhang

Renmin University of China - School of Business

Haoran Zhu

Southern University of Science and Technology; The University of Hong Kong - Faculty of Business and Economics

Date Written: March 4, 2024

Abstract

This study draws on human capital theory to measure the quality of accounting personnel based on their education level and investigate whether the education level of the client firm’s accounting personnel affects auditors’ assessment of audit risk by examining audit outcomes. It shows that auditors charge higher fees and are more likely to make audit adjustments for companies whose accounting personnel have a lower level of education. The relationship between the education level of accounting personnel and audit fees (audit adjustments) is robust to an instrumental variable model, an entropy balancing approach, and a difference-in-differences analysis. Audit firms strategically assign more experienced partners to audit companies whose accounting personnel’s average education levels are relatively low. Taken together, these findings suggest that the education level of clients’ accounting personnel affects auditors’ assessment of audit risk and audit outcomes.

Keywords: Human capital, accounting personnel, audit risk, audit fee, audit adjustment

JEL Classification: M40, M42, J01, J24

Suggested Citation

Gul, Ferdinand A and Lin, Bin and Yang, Zhifeng and Zhang, Min and Zhu, Haoran, Accounting Personnel Quality, Audit Risk, and Auditor Responses (March 4, 2024). Gul, F. A., B. Lin, Z. Yang, M. Zhang, and H. Zhu. 2024. Accounting personnel quality, audit risk, and auditor responses. Auditing: A Journal of Practice & Theory 43(1), 125-149., Available at SSRN: https://ssrn.com/abstract=3665535 or http://dx.doi.org/10.2139/ssrn.3665535

Ferdinand A Gul

Deakin University ( email )

Australia

Bin Lin

Sun Yat-sen University (SYSU) ( email )

Haizhu District
Guangzhou, Guangdong
China

Zhifeng Yang (Contact Author)

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

Min Zhang

Renmin University of China - School of Business ( email )

Beijing
China

Haoran Zhu

Southern University of Science and Technology ( email )

No 1088, xueyuan Rd.
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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