Is Office Human Resource Capacity Associated with Engagement Audit Quality?

• In Event: Audit Quality

Abstract

This study examines whether audit offices with greater human resource capacity for the given level of office workload (audit and non-audit) for issuer audit clients deliver higher audit quality. Specifically, we hypothesize that the availability of more CPA-certified personnel in audit firm offices enhances audit quality primarily due to the audit teams being populated and supervised by competent and experienced CPAs. We measure office human resource capacity as the ratio of CPA professionals to total fees (audit and non-audit fees) paid by issuer clients to Big 4 accounting firms’ offices in the U.S. Consistent with our expectations, the results indicate that offices with a greater human resource to workload allocation deliver higher quality audits as measured by the lower likelihood of restatements and less extreme accruals earnings management. Additional analyses reveal that the effect of human resource capacity on audit quality is more pronounced for busy season audits than non-busy season audits and that our results are not driven by office size. This study contributes to a developing stream of literature investigating the determinants of office-level audit quality.

Authors

• Albert L. Nagy, John Carroll University

• Matthew Sherwood, University of Massachusetts-Amherst

• Aleksandra B Zimmerman, Northern Illinois Universtiy