High turnover leads to more expensive, lower quality audits
Accounting faculty present research at PCAOB conference
By Matthew Biddle
Szerwo
High turnover at accounting firms reduces audit quality and damages client relationships—that was the message Brandon Szerwo, assistant professor of accounting and law, shared with industry leaders, regulators and fellow academics at an invitation-only conference this fall.
Szerwo presented research he co-authored with Joshua Khavis, assistant professor of accounting and law, at the Public Company Accounting Oversight Board’s eighth annual Conference on Auditing and Capital Markets in October. The study is the first to quantify the costs of turnover within accounting firms on audits and client relationships.
To conduct their research, Szerwo and Khavis obtained proprietary employee turnover data on 20 large U.S. accounting firms, including the Big Four, from a leading employment analytics company. Then, they parsed through data from 412 individual offices and 4,825 clients to calculate year-over-year turnover and its effects on audit quality and auditor-client relationships across several metrics.
Khavis
They found offices experiencing high turnover charge clients more in fees and spend less time on audits, and their clients are more likely to switch auditors the following year.
“As headlines describe the ‘Great Resignation’ and staffing shortages become commonplace, our research is increasingly relevant,” Szerwo says. “While our results are specific to the audit field, we shed light on the broader phenomenon of turnover across an entire industry and how it can affect firms, employees, customers and investors.”
Established by Congress through the Sarbanes-Oxley Act of 2002, the PCAOB oversees the audits of public companies to protect investors and further the public interest. The Securities and Exchange Commission oversees the PCAOB’s work to establish auditing standards and register public accounting firms that prepare audit reports.