Individual Auditor Characteristics and Audit Quality: Evidence From Nonprofits in the U.S.

Abstract

Using a sample of U.S. nonprofit organizations, where the identity of the auditor in charge of the audit is revealed, I investigate whether individual auditor characteristics (gender, engagement load, and tenure) are associated with audit quality. The empirical results show that female auditors are more likely to report internal control deficiencies (ICDs) and issue qualified audit opinions (QAOs) to nonprofits. I also find that auditors with more Single Audit engagements within the same year are less likely to report ICDs. In addition, auditor tenure is negatively associated with the likelihood of issuing an ICD report, suggesting that auditors become complacent as the length of the auditor-client relationship lengthens or, alternatively, that they are better able to assist their clients in correcting ICDs and in maintaining stronger internal control environments as they gain client-specific knowledge over time. In additional analyses, I use subsamples partitioned by client risk and audit firm size, and find that individual auditor characteristics generally play a more significant role in the issuance of ICDs and QAOs for riskier clients than for less risky clients. Additional analysis suggests tenure and engagement load results are sensitive to the sample specification employed.

Keywords: Audit Quality, Qualified Audit Opinions, Individual Auditor Characteristics, Internal Control Deficiency, Nonprofit Audit

JEL Classification: M41, M42