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    Do Individual Auditors Affect Audit Quality? Evidence from...
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 11.0 Audit Quality and Quality Control 
    Do Individual Auditors Affect Audit Quality? Evidence from Archival Data.
    Practical Implications:

    Unlike in China, audit reports in many countries have not indicated the names of engagement partners until recently. However, important regulatory changes have been proposed or implemented. In 2006, the European Union (EU) issued the Eighth Company Law Directive, which requires EU member states to adopt a requirement that the audit report be signed by the engagement partner. In 2011, the Public Company Accounting Oversight Board (PCAOB), under the SEC in the U.S., proposed to amend its auditing standards to require audit firms to disclose the names of engagement partners in their audit reports. The regulatory reform in the EU, and the proposed change in the U.S., if implemented, will provide future opportunities for accounting scholars to analyze audit quality at the individual auditor level in Western countries. Such evidence will not only address the external validity concerns of the current study, but also shed light on how auditing institutions affect the extent to which individual auditors can imprint their characteristics on audit outcomes.


    Gul, F. A., D. Wu, and Z. Yang. 2013. Do Individual Auditors Affect Audit Quality? Evidence from Archival Data. Accounting Review 88 (6): 1993-2023.

    archival research, audit quality, auditor characteristics
    Purpose of the Study:

    This study examines whether and how audit quality varies across individual auditors. It seems likely that individual characteristics of the auditor could affect the quality of the audit being undertaken. Although individual auditors may influence audit outcomes with their personal characteristics, they are constrained by the quality-control mechanisms within the audit firm. In fact, audit firms try to maintain consistency in audit quality through control mechanisms, including standardization of work procedures, centralized control of risk and materiality decisions, and socialization precisely because of individual auditors’ idiosyncrasies. Thus, it is not clear ex ante whether individual auditors can significantly affect audit quality and, if so, how large such effects would be.

    Because data on the identity and characteristics of individual auditors are not available in the U.S. and other major markets, the authors analyze variation in audit quality across individual signing auditors in the Chinese market, where such auditors are required to identify themselves in the audit report. In China, an audit report is normally signed by two auditors, who can be partners or senior managers. The role of signing auditors in China is similar to that of engagement partners in other markets, in that signing auditors lead the audit team and are responsible for decision-making on significant matters in the audit process. Hence, audit reporting outcomes and clients’ financial statements could be influenced significantly by signing auditors. 

    Design/Method/ Approach:

    The authors obtain accounting and stock return data from the China Stock Market and Accounting Research database (CSMAR). They collect audit opinions and the identities of audit firms and signing auditors manually from annual reports. The final sample consists of 14,802 nonfinancial company-years for companies listed on the Shanghai and Shenzhen stock exchanges between 1998 and 2009. After cross-checking the identities of the signing auditors in CICPA, the authors identify a total of 3,726 unique signing auditors.


    The authors document significant variation in audit quality across individual auditors. The effects of individual auditors on the quality of audit reporting and clients’ earnings quality are both statistically and economically significant and are pronounced in both large and small audit firms. They also explore the extent to which individual auditor effects can be explained by their demographic characteristics. The authors find that signing auditors who are also partners or who were exposed to Western accounting systems during their university education or who have worked in an international Big N audit firm are more conservative, while auditors who have obtained a master’s degree or above or have a political affiliation are more aggressive. These results suggest that auditors’ individual characteristics can affect their judgments and decisions, ultimately translating into variation in audit quality across individual auditors. Finally, the authors show that auditor aggressiveness, as captured by fixed effect estimates, is reliably associated with the likelihood of regulatory sanctions against problematic audits and the frequency of subsequent corrections of overstated earnings or equity.

    Audit Quality & Quality Control, Audit Team Composition