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Audit personnel salaries and audit quality

Author

Listed:
  • Jeffrey L. Hoopes

    (University of North Carolina at Chapel Hill)

  • Kenneth J. Merkley

    (Indiana University)

  • Joseph Pacelli

    (Indiana University)

  • Joseph H. Schroeder

    (Indiana University)

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.

Suggested Citation

  • Jeffrey L. Hoopes & Kenneth J. Merkley & Joseph Pacelli & Joseph H. Schroeder, 2018. "Audit personnel salaries and audit quality," Review of Accounting Studies, Springer, vol. 23(3), pages 1096-1136, September.
  • Handle: RePEc:spr:reaccs:v:23:y:2018:i:3:d:10.1007_s11142-018-9458-y
    DOI: 10.1007/s11142-018-9458-y
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    More about this item

    Keywords

    Audit personnel salary; Audit quality; Salary determinants; Audit fees;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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