Audit team attributes matter: how diversity affects audit quality

It has been widely recognized that the way in which audit teams are structured and function plays a crucial role in determining the level of audit service quality (PCAOB, 2013). However, despite this claim, little empirical research has been conducted on this phenomenon. Using private data from two of the Big 4 audit firms, we fill this gap and document how the group structure of audit teams and the deriving social dynamics influence audit quality. Drawing from existing work in auditing and sociology, we develop our model by arguing that teams are composed not simply of individuals, but of groups of individuals that variously combined affect team performance. Starting from this premise, we study how the professional group structure (the different mix of work assigned to the groups of partners, managers, seniors and staff) influences audit quality, and how this effect varies depending on the years of tenure. We also show that the group structure of leading auditors with a common educational background impacts on audit quality. Finally, we provide evidence that the group structure of incumbent managers vs stable managers during the life-cycle of an engagement, and the groups of female vs male leading auditors are also relevant for the quality of the auditing work. Our findings provide useful insights that are potentially interesting for audit firms because they suggest some strategies for enhancing the quality of the work done by their teams. Moreover, regulators around the world may consider implementing specific rules aimed at ensuring the best interactions among groups of individuals in audit teams.