The Effect of Individual Auditor Quality on Audit Outcomes: Opening the Black Box of Audit Quality

Managerial Auditing Journal, Forthcoming

56 Pages Posted: 28 Jan 2017 Last revised: 19 May 2022

See all articles by Derrald Stice

Derrald Stice

University of Hong Kong - HKU Business School

Han Stice

The Chinese University of Hong Kong

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: February 5, 2022

Abstract

This study aims to examine the effect of individual auditor quality (below the partner level) on overall audit quality. We aggregate audit employee-level individual performance evaluations to create a measure of auditor quality at the office level. We find that high quality audit offices are associated with a lower likelihood of client restatement, fewer client abnormal accruals, and (weakly) a higher likelihood of a client receiving a going concern opinion. We partition employees into low, medium, and high level, based on job title, in order to investigate which employee levels drive these results. We find that the restatement results are driven by high quality high-level employees (Senior Managers/Directors), while the weak going concern results are driven by high quality low-level employees (Seniors). Furthermore, we find evidence that high quality audit teams are associated with all aspects of audit quality and the magnitude of these team effects are much larger than those of the effects for any individual employee type. Our findings are consistent with higher-level auditors preventing the most serious financial statement deficiencies, low-level employees contributing to audit firm independence, and overall team quality creating synergy which has the strongest effect on all aspects of audit quality. These insights based on individual auditor evaluations are new to the literature. Overall, our empirical results suggest that individual auditor quality is associated with higher quality audits, and that employees at all levels affect audit outcomes.

Keywords: Employee Performance Evaluations, Big N Auditors, Audit Quality, Restatements, Individual Auditor

JEL Classification: G01, M4, M49

Suggested Citation

Stice, Derrald and Stice, Han and White, Roger M., The Effect of Individual Auditor Quality on Audit Outcomes: Opening the Black Box of Audit Quality (February 5, 2022). Managerial Auditing Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2907184 or http://dx.doi.org/10.2139/ssrn.2907184

Derrald Stice

University of Hong Kong - HKU Business School ( email )

Accounting Area
Hong Kong, HK
China

Han Stice (Contact Author)

The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong

Roger M. White

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
835
Abstract Views
3,121
rank
42,032
PlumX Metrics