Do consulting services affect audit quality? Evidence from the workforce

50 Pages Posted: 6 Jan 2023

See all articles by Anastassia Fedyk

Anastassia Fedyk

University of California, Berkeley - Haas School of Business

Tatiana Fedyk

University of San Francisco

James Hodson

AI for Good; Cognism; Jožef Stefan Institute

Natalya V. Khimich

Drexel University

Date Written: January 4, 2023

Abstract

This paper investigates how consulting services affect audit quality, from the perspective of knowledge and expertise sharing between employees. Using a comprehensive office-level dataset of employment profiles and skillsets covering 86% of all employees at large U.S. public accounting firms, we document a positive effect of consulting employees on audit quality. Specifically, a one-standard-deviation increase in the share of consulting employees in an office results in a 2.7 percentage point reduction in restatements (a decrease of 19% relative to the baseline). This effect is strongest when consulting employees have skills complimentary to auditors, such as special industry, technical, and management skills, supporting the knowledge sharing hypothesis. In addition, we demonstrate that the effect increases with consulting employees’ tenure with a firm, does not diminish over time, is present for both Big4 and non-Big4 firms, and is more pronounced for larger, more complex, and more important audit clients.

Keywords: Consulting; Employee skills; Skill complementarity; Audit quality; Labor effects

JEL Classification: D22, E24, J24, M42

Suggested Citation

Fedyk, Anastassia and Fedyk, Tatiana and Hodson, James and Khimich, Natalya V., Do consulting services affect audit quality? Evidence from the workforce (January 4, 2023). Available at SSRN: https://ssrn.com/abstract=4318287 or http://dx.doi.org/10.2139/ssrn.4318287

Anastassia Fedyk (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Tatiana Fedyk

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
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James Hodson

AI for Good ( email )

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9177449036 (Fax)

HOME PAGE: http://ai4good.org

Cognism ( email )

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HOME PAGE: http://cognism.com

Jožef Stefan Institute ( email )

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Ljubljana, 1000
Slovenia

HOME PAGE: http://ailab.ijs.si

Natalya V. Khimich

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

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