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Collateral Damage: Audit Quality and Office Growth

Sat, January 19, 10:15 to 11:45am, TBA

Abstract

ABSTRACT: This study investigates the relation between changes in office-level workload and audit quality. We predict that changes in proxies for office-level workload will exhibit a negative relation with proxies for audit quality. To test this prediction, we examine a sample of 15,488 firm-year observations from 2005-2010. Using several proxies for office growth, results indicate a consistent negative relation between changes in volume of audit work and audit quality. Specifically, offices that experienced growth are associated with greater absolute discretionary accruals as well as increased likelihood of a restatement. We also find evidence that the relation is transient and diminishes in the year following the change in workload. The results also indicate that increases (rather than decreases) in office workload seem to drive the results. That is, we find that positive office growth is negatively related to audit quality. Lastly, we show that these findings are driven by office growth from both matriculating and growing clients. These findings are robust to controls for client and auditor characteristics as well as alternative specifications of workload.

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