The Impact of Employee Morale on Corporate Audits

• In Event: Risk and Audit Fees

Abstract

While audit standards suppose that clients’ workplace environments affect fraud risk, little empirical evidence supports or refutes this proposition. We use a proprietary dataset of workplace satisfaction ratings submitted by over 100,000 employees working for large public U.S. companies and document that lower workplace ratings are associated with higher audit fees and longer audit report lags. Lower ratings also increase the likelihood of firms receiving modified going concern opinions and being the target of accounting litigation. We also interview partners and senior managers at large U.S. accounting firms about how they assess their clients’ workplace environment and gauge implications of our findings for auditing practice. Our study shows how organizational workplace environments affect auditor risk assessments and auditing outcomes and provides insights to practicing auditors and corporate executives.

Authors

• Minjie Huang, The University of Kansas

• Adi Masli, The University of Kansas

• Felix Meschke, The University of Kansas

• James P. Guthrie, The University of Kansas