Is There a Brain Drain in Auditing? The Determinants and Consequences of Auditors’ Leaving Public Accounting

Posted: 3 Jun 2021

See all articles by W. Robert Knechel

W. Robert Knechel

University of Florida - Fisher School of Accounting

Juan Mao

University of Texas at San Antonio - Department of Accounting

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: May 25, 2021

Abstract

This study investigates why auditors leave public accounting and the consequences of auditor departures, both of which have been of great concern for audit firms and regulators worldwide. Using data from China and controlling for demographics, we find that audit partners and managers, auditors who generate more revenue, and auditors who provide higher audit quality have a lower likelihood of departure, while non–Big 4 auditors have a higher likelihood of departing public accounting. We also find that an audit firm is likely to lose clients when an auditor departs. Clients who stay with the same firm pay lower audit fees but with no drop-off in audit quality after a signing auditor departs. In supplementary analyses, we also demonstrate that the determinants and consequences of auditor departures are different for auditors who leave the firm but not the profession (i.e., auditor turnover). Specifically, high audit quality is associated with a lower likelihood of auditor departure, but it increases auditor turnover. We also observe that audit quality is reduced for the clients who stay with an audit firm after highly skilled auditors depart for high visibility corporate positions. Our study provides insights that should be of interest to the audit profession, audit firms, and regulators.

Keywords: auditor departure, auditor turnover, auditor switch, audit fees, audit quality

JEL Classification: M42, M51

Suggested Citation

Knechel, W. Robert and Mao, Juan and Qi, Baolei and Zhuang, Zili, Is There a Brain Drain in Auditing? The Determinants and Consequences of Auditors’ Leaving Public Accounting (May 25, 2021). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3858439

W. Robert Knechel (Contact Author)

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States

Juan Mao

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8305 (Phone)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Zili Zhuang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin N.T.
Hong Kong

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