Outside Job Opportunities for External Auditors and Audit Quality

• In Event: Auditor Labor Markets II

Abstract

Public accountants are in high demand by non-accounting firms. While this demand attracts high-quality accountants to public accounting, it can negatively impact audit quality if accounting firms cannot adequately respond to auditor turnover. We find that the number of job postings for public accountants by non-accounting firms in the busy season is negatively associated with audit quality. Results are stronger for audit offices that subsequently significantly increase job postings for auditors, implying that our primary results are due to auditors leaving. The effect is most pronounced when audit offices pay relatively low salaries and when non-accounting firms demand higher-ranked public accountants. Results do not differ based on accounting firm size and are robust to placebo tests. These results contribute to the literatures on accounting firm human capital, audit labor market competition, and busy-season audits, and suggest that accounting firms are not immune to negative effects of human capital loss.

Authors

• Matthew Stephen Ege, Texas A&M University

• Young Hoon Kim, George Mason University

• Dechun Wang, Texas A&M University