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Audit personnel salaries and audit quality

Jeffrey Hoopes (), Kenneth J. Merkley (), Joseph Pacelli () and Joseph H. Schroeder ()
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Kenneth J. Merkley: Indiana University
Joseph Pacelli: Indiana University
Joseph H. Schroeder: Indiana University

Review of Accounting Studies, 2018, vol. 23, issue 3, No 9, 1096-1136

Abstract: Abstract This study examines the relation between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the associate, senior, and manager ranks for Big 4 audit offices from 2004 to 2013, using unique individual-auditor-level data obtained from the U.S. Department of Labor. We find that offices that pay lower salaries have a higher percentage of clients that experience restatements. In related analyses, we also find lower levels of audit quality when audit employees are paid less, relative to other lines of service in accounting firms. Finally, we document positive and significant associations between salary and fees, suggesting that audit offices pass some of the cost of higher labor onto their clients. Overall, our findings provide important initial evidence on the role of audit salary and its relation to audit quality and audit fees.

Keywords: Audit personnel salary; Audit quality; Salary determinants; Audit fees (search for similar items in EconPapers)
JEL-codes: M41 M42 M51 M52 (search for similar items in EconPapers)
Date: 2018
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