That's What Friends are for: Audit Quality and Accounting Employee Affiliations with Audit Firms
47 Pages Posted: 14 Sep 2015 Last revised: 8 Nov 2016
Date Written: September 1, 2015
Non-executive accounting employees are “affiliated”, or alumni, if they previously worked for their companies’ audit firms. Using a unique data set consisting of job histories of accounting employees working at S&P 1500 companies who were previously employed at public accounting firms, we study the effect of alumni affiliations on audit quality. We find that companies with a larger proportion of alumni among their accounting employees are significantly less likely to issue financial misstatements, and have lower absolute abnormal accruals. Our results shed light on the way non-executive accounting employees affect audit quality, and are of practical importance to the hiring of accounting employees by industry companies.
Keywords: Non-executive accounting employees, Auditor alumni affiliations, Audit quality
JEL Classification: M41
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