Joint Meeting of the Mid-Atlantic and Northeast Regions

Can Individual Auditor Career Jumps Predict Audit Partner Quality?

• In Event: Audit and Partner Quality

Abstract

This paper questions whether individual auditors’ significant career advancements from lower to higher tiered audit firms can predict their audit quality. Using hand-collected data on nearly 2,000 audit partners from LinkedIn, I identify audit partners with large career jumps from previous employments in the auditing labor market and test whether these upward trajectories predict audit partner quality. I find that Career Jumper audit partners provide higher quality audits, as evidenced from discretionary accruals, going concern opinions, and financial restatements. These audit quality results are driven by those auditors with career jumps earlier in their careers and those unrelated to audit firm mergers, suggesting that Career Jumper audit partners are better quality auditors and that these career jumps may be indicative of corrections to the auditing labor market. Audit client assignments also play a role as these partners are assigned to their audit firms’ most complicated clients. These results are robust to audit partner change specifications, entropy balancing and other sensitivity analyses. Taken together, the findings suggest that audit partners with significant upward career transitions are an important audit quality indicator (AQI) that would be of interest to investors, regulators, and audit committees as well as to academics and practitioners.

Author

• Joseph Micale, New Jersey Institute of Technology