58 Pages Posted: 1 Jul 2016 Last revised: 29 May 2017
Date Written: April 25, 2017
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: 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