Journal of Accounting and Public Policy
Both accounting ﬁrms and regulators recognize the importance of human capital in the audit function, yet we know little about whether and how the level of professionally qual-iﬁed human capital varies across ofﬁces of an audit ﬁrm and whether it is associated with audit quality. In this paper, we examine the association between ofﬁce professionally qualiﬁed human capital and audit quality. Using hand-collected data on Big 4 audit ﬁrm ofﬁce CPA levels from 30 U.S. cities, we ﬁnd that ofﬁces with relatively more professionally qual-iﬁed human capital deliver higher quality audits, with this beneﬁt being more pronounced for audits performed during busy season than for non-busy season audits. The results underscore the importance of the availability of professionally qualiﬁed human capital in an audit ofﬁce to the ofﬁce’s audit quality. Our ﬁnding of CPA levels being an ofﬁce-level audit quality indicator will potentially help the PCAOB in their ongoing Audit Quality Indicator (AQI) project, whose goal is to assist audit ﬁrms, clients, and investors in measur-ing audit quality. Furthermore, the results lend credibility toward the CPA designation, which helps justify the AICPA’s, NASBA’s, and state Accountancy Boards’ regulatory roles of admitting and licensing qualiﬁed candidates.
Nagy, Albert; Sherwood, Matthew G.; and Zimmerman, Aleksandra B., "CPAs and Big 4 office audit quality" (2023). 2023 Faculty Bibliography. 21.
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