Does Gender and Ethnic Diversity among Audit Partners Influence Office-Level Audit Personnel Retention and Audit Quality?

Abstract

Motivated by prior literature on organizational identification and 23 semistructured interviews with a variety of U.S. audit partners and directors, we examine whether the gender and ethnic diversity of an office’s audit partners influences the retention of the office’s audit professionals and the quality of the audits conducted by the office. Using hand-collected data on U.S. audit partners, we find that greater levels of (or changes in) diversity in office audit partners’ gender and ethnicity are associated with lower (reduced) turnover among office audit professionals and higher (increased) office-level audit quality. To provide further insight into the audit quality results, we conduct a path analysis based on the most common mechanisms highlighted in our interviews. The results indicate partial mediation through increased retention, greater gender and ethnic diversity among office audit personnel, client continuity, and increased efficiency. Further tests reveal that the association with audit quality is incremental to, and distinct from, the effect of individual engagement partner characteristics and does not reflect client screening. Collectively, the findings underscore the importance of gender and ethnic diversity among office audit partners to organizational outcomes and provide important practical implications for audit firms.

Keywords: diversity, leadership, audit quality, audit offices, audit partners, audit fees

JEL Classification: M41, M42