Human Resource Management in Big Four Audit Firms and Audit Quality.

• In Event: Accounting Firm Policy an Audit Quality

Abstract

In this paper we examine whether human resource management (HRM) practices affect objective measures of audit quality in Big Four audit firms. Prior research on HRM practices in audit firms does not make direct links to objective measures of audit quality. Based on prior research on human capital effects in professional service firms (e.g. Hitt et al. 2001) as well as behavioral accounting research (e.g. Bol et al. 2015) we motivate two hypotheses. First, we argue that audit firms which have more extensive selection practices are likely to attract higher quality hires and the latter are likely to deliver higher quality audit services, ceteris paribus (Hypothesis 1). Second, we predict that extensive human capital development practices increase audit quality (Hypothesis 2). To test our predictions we rely on a combination of a recent unique and private survey dataset tapping into the HRM practices of Big Four audit firms in the Netherlands and corresponding archival data to objectively measure various objective audit quality proxies. We test four different audit quality models covering different dimensions of audit quality as classified by DeFond and Zhang (2014). Our hypotheses are confirmed as we find a significantly positive effect of perceived HRM practices across all four audit quality models. These results suggest that HRM practices are important organizational factors influencing audit quality.

Authors

• Jorien Pruijssers, Desautels Faculty of Management, McGill University

• Ines Simac, KU Leuven

• Marleen Willekens, KU Leuven