Audit Personnel Salaries and Audit Quality

60 Pages Posted: 1 Jul 2016

See all articles by Jeffrey L. Hoopes

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

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 23, 2018

Abstract

This study examines the relation 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 individual auditor level 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 analyses, 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 document positive and significant associations between salary and fees, suggesting that audit offices pass some of the cost of higher labor onto their clients. Overall, our findings provide important initial evidence on the role of audit salary and its relation to audit quality and audit fees.

Keywords: Audit Personnel Salaries

JEL Classification: M42

Suggested Citation

Hoopes, Jeffrey L. and Merkley, Kenneth J. and Pacelli, Joseph and Schroeder, Joseph H., Audit Personnel Salaries and Audit Quality (April 23, 2018). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2958520 or http://dx.doi.org/10.2139/ssrn.2801909

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Kenneth J. Merkley

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

1309 E. 10th Street
Bloomington, IN 47405
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 (Contact Author)

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

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

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