Gender Differences in Audit Quality

Abstract

Prior studies show that, in general, women are more risk averse and act more ethically than men. The objective of this paper is to examine the effects of gender on audit quality, as measured by discretionary accruals and the likelihood of issuing a going concern opinion. Unlike prior research, this paper uses a unique sample of listed firms in Taiwan, where audit reports must be audited and certified in the name of two signing auditors as well as in the name of an audit firm. The availability of auditors' gender data provides us with a unique setting to address this issue. The results show that clients have lower discretionary accruals when audited by female signing auditors, regardless of lead or concurring auditors. Also, clients have the least discretionary accruals when both lead and concurring auditors are female. Finally, this study also shows that variance in accruals increases monotonically with the number of male auditors. As an alternative measure of audit quality, we also examine and find that female auditors are more likely to issue going concern audit opinions than male auditors. However, we further find that the higher tendency of female auditors to issue a going concern opinion is driven mainly by Big 4 firms. Further analyses indicate that there is no difference in industry expertise between female and male audit partners; thus, our results are not driven by the industry expertise. Finally, we find that although female auditors self select "safer" clients, our primary conclusion remain unchanged after controlling for clients' financial risk. Together these results provide consistent evidence that the gender of signing auditors is what appears to matter in terms of differential audit quality among accounting firms, at least with respect to discretionary accruals and the likelihood of issuing a going concern opinion.

Keywords: Gender differences, discretionary accruals, going concern opinion

JEL Classification: J16, M49, M41, M43