Flexible CPA Staffing: Implications for Audit Fees and Audit Quality

• In Event: Human Capital

Abstract

The provision of audit services is a highly labor-intensive task. In this paper, we analyze monthly CPA (certified public accountants) employment data of each audit firm to assess the implications of CPA staffing for audit pricing and audit quality. Consistent with the prevalence of short-term hires of freelance CPAs, we find that growth in CPA employment peaks before the busy season but drops dramatically to below zero afterward. We further document that the standard deviation of changes in monthly CPA numbers within a year is negatively associated with audit fees, implying that flexible staffing enables audit firms to charge lower fees to clients. In addition, we find no evidence that flexible staffing impairs audit quality, implying that lower audit fees by flexible staffing are not attributable to the reduction in audit efforts. We conclude that audit firms reduce operating leverage via flexible staffing arrangements and share the benefit with clients without compromising audit quality.

Authors

• Hyungjin Cho, Universidad Carlos III de Madrid

• Meeok Cho, Seoul National University

• Sehee Kim, Seoul National University

• Woo-Jong Lee, Seoul National University