Audit Leadership Diversity and Audit Quality

Abstract

We examine whether a culture emphasizing diversity in accounting firms, as embodied by the diversity of local offices' audit leaders, influences audit quality. An organizational culture that emphasizes diverse perspectives and experiences can have a permeating influence on the execution of all local audits, particularly with respect to judgment and decision-making. We develop a composite measure of audit office partner diversity by capturing and combining variations among the following audit office partner characteristics: gender, age, ethnicity, education, client base, and expertise. Our results indicate that greater diversity in audit office partners is associated with higher audit quality among office clientele, incremental to characteristics of the client, the geographic area, the audit office, and the engagement partner, including engagement partner, client, and MSA fixed effects. These findings underscore the importance of an audit office culture that values diversity and provide important practical implications.