Volunteer Work and Audit Quality

• In Event: Diversity, Talent, and Volunteerism

Abstract

This study examines whether audit partners’ volunteer work is related to their audit quality. On the one hand, an audit partner’s willingness to volunteer at not-for-profit organizations could lead to improved audit quality. People who volunteer are less motivated by money, which could lead to greater independence. Volunteering also signals altruism which is associated with improved teamwork. On the other hand, volunteer work potentially decreases the working time available to the audit partner and hence may negatively impact audit quality (i.e., the busyness effect), although it is possible that the quality control system at the audit firm may ensure audit quality is not impaired by partner busyness. We find that in aggregate the effect of the latter is greater than the former—clients of audit partners who volunteer at not-for-profits are more likely to restate earnings. Consistent with the busyness effect, we find some evidence that this effect is more pronounced when the client’s fiscal year-end coincides with the busy season of the partner, and when the partner volunteers at larger organizations or organizations with mandatory audit requirements. We also find clients with partners who volunteer are more likely to file their annual reports after the statutory due date. The impact of volunteering on audit quality is more positive, however, when the partner volunteers at not-for-profits of a more altruistic nature, which lends some support for the benefit of a partner’s altruism on audit quality. This study is among the first to provide large sample archival evidence on the impact of volunteer work on full-time job performance. As such, while we study audit partners, one type of employee, our results speak to the broader question of the benefits and costs of volunteering.

Authors

• Gus De Franco, Tulane University

• Yuan Ji, University of Texas at Arlington

• Yinqi Zhang, American University