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Audit Personnel Salaries and Audit Quality

58 Pages Posted: 1 Jul 2016 Last revised: 29 May 2017

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill

Kenneth J. Merkley

Cornell University - Samuel Curtis Johnson Graduate School of Management

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Joseph H. Schroeder

Indiana University - Kelley School of Business - Department of Accounting

Date Written: April 25, 2017

Abstract

This study examines the relationship between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the Associate, Senior and Manager ranks for Big 4 audit offices from 2004 to 2013 using unique data obtained from the U.S. Department of Labor. We find that offices that pay lower salaries have a higher percentage of clients that experience restatements. In related analysis, we also find lower levels of audit quality when audit employees are paid less relative to other lines of service in accounting firms (tax, consulting, etc.). Finally, we examine the ability of audit offices to pass the costs of audit labor onto their clients. We document positive and significant associations between salary and fees, suggesting that audit offices pass the cost of labor onto their clients. Overall, our findings provide initial evidence on the role of audit salary and its impact on audit quality and audit fees.

Keywords: Audit Salaries, Audit Quality, Audit Office

JEL Classification: M41, M42, M51, M52

Suggested Citation

Hoopes, Jeffrey L. and Merkley, Kenneth J. and Pacelli, Joseph and Schroeder, Joseph H., Audit Personnel Salaries and Audit Quality (April 25, 2017). Available at SSRN: https://ssrn.com/abstract=2801909 or http://dx.doi.org/10.2139/ssrn.2801909

Jeffrey L. Hoopes (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Kenneth J. Merkley

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Joseph H. Schroeder

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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