Individual Auditor Turnover and Audit Quality – Large Sample Evidence from U.S. Audit Offices

55 Pages Posted: 21 Jun 2022 Last revised: 10 Apr 2024

See all articles by Tao Ma

Tao Ma

Texas Tech University - Area of Accounting

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance

Yakun Wang

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics; Shenzhen Finance Institute

Yuping Zhao

University of Houston

Date Written: March 30, 2024

Abstract

We examine the relationship between audit quality and office-level auditor turnover. Using resumes of over 106,000 Big 4 auditors, we find that audit offices with higher turnover have a greater likelihood of client annual report restatements and are more likely to issue incorrect audit opinions on internal controls over financial reporting. These detrimental effects are more pronounced when the lost auditors are more experienced, when the office faces tighter human capital constraints, and are primarily attributable to voluntary turnover. Further, such negative effects are borne mostly by complex clients and intangible-intensive clients but are weakened for clients with greater product similarity to the client portfolio of the audit office. Last, the impact of office-level turnover on audit quality persists after controlling for firm-level turnover. Our findings inform the current policy debate on whether and to what extent audit firms should disclose auditor turnover as a potential indicator of audit quality.

Keywords: Auditor turnover, audit quality, audit quality indicators, financial restatements, audit fees

Suggested Citation

Ma, Tao and Wan, Chi and Wang, Yakun and Zhao, Yuping, Individual Auditor Turnover and Audit Quality – Large Sample Evidence from U.S. Audit Offices (March 30, 2024). Available at SSRN: https://ssrn.com/abstract=4132534 or http://dx.doi.org/10.2139/ssrn.4132534

Tao Ma

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance ( email )

Boston, MA 02125
United States

Yakun Wang

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

Shenzhen Finance Institute ( email )

Yuping Zhao (Contact Author)

University of Houston ( email )

334 Melcher Hall
Houston, TX 77204
United States
713-743-2166 (Phone)
713-743-4828 (Fax)

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