The Impact of Job Satisfaction on Audit Quality

• In Event: Audit Quality, Opinions and Specialization

Abstract

I study whether audit employee job satisfaction affects audit quality using a novel dataset on job satisfaction and a natural experiment based on local precipitation. I observe auditor job satisfaction at the audit firm office level, which allows me to examine variation in satisfaction levels within the audit firm, and also over time for the same audit office. My restrictive sets of fixed effects also exclude alternative explanations pertaining to trends happening at the city, industry and audit firm levels. I find that a unit increase in job satisfaction level (on a scale from 1 to 5) improves 76% of one standard deviation in audit quality. Furthermore, audit employees with higher job satisfaction level are more likely to detect and prevent large opportunistic earnings management. Additional analysis shows that management quality and career concerns are two channels through which job satisfaction affects audit quality. My findings shed light on the way non-executive audit employees affect audit quality, and are of practical importance to the audit firms’ treatment of their employees as well as audited firms’ information environment.

Author

• Phong Truong, Carnegie Mellon University