Accounting Personnel Quality, Audit Risk, and Auditor Responses

54 Pages Posted: 11 Sep 2020

See all articles by Ferdinand A Gul

Ferdinand A Gul

Deakin University

Bin Lin

Sun Yat-Sen University (SYSU)

Zhifeng Yang

Stony Brook University

Min Zhang

Renmin University of China - School of Business

Haoran Zhu

The University of Hong Kong - Faculty of Business and Economics

Date Written: July 12, 2020

Abstract

Auditing standards and anecdotal evidence suggest that accounting personnel’s lack of financial reporting competencies can increase audit risk. This study draws on human capital theory to measure the quality of accounting personnel based on their education level and obtains evidence of how the quality of accounting personnel affects audit risk through examining audit outcomes. It shows that auditors charge higher fees and are more likely to make audit adjustments to companies whose accounting personnel have a lower level of education. The relationship between accounting personnel’s education and audit fees (audit adjustments) is robust to the propensity score matching approach and stronger in companies with more complex operations. Audit firms strategically assign more experienced partners to audit companies whose accounting personnel have a lower level of education. Taken together, these findings suggest that the quality of accounting personnel affects audit risk and audit outcomes.

Keywords: Human capital, accounting personnel, audit risk, audit fee, audit adjustment

JEL Classification: M40, M42, J01, J24

Suggested Citation

Gul, Ferdinand A and Lin, Bin and Yang, Zhifeng and Zhang, Min and Zhu, Haoran, Accounting Personnel Quality, Audit Risk, and Auditor Responses (July 12, 2020). Available at SSRN: https://ssrn.com/abstract=3665535 or http://dx.doi.org/10.2139/ssrn.3665535

Ferdinand A Gul

Deakin University ( email )

Australia

Bin Lin

Sun Yat-Sen University (SYSU) ( email )

Guangzhou, Guangdong
China

Zhifeng Yang (Contact Author)

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

Min Zhang

Renmin University of China - School of Business ( email )

Beijing
China

Haoran Zhu

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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