Auditors with an undergraduate university degree focusing on quantitative analysis – including accounting, engineering and maths – produce more accurate audited financial reports (as measured by recorded levels of “abnormal accruals”) than do auditors with a bachelor’s degree in fields with a more qualitative approach such as history, classics or law, says the study published in the European Accounting Review.
The study finds further that companies pay more for auditors with a degree in a quantitative subject, by 14.5% in the auditor sample studied.
“Taken together, our findings suggest that, from the perspective of the audit profession, auditors with university educations involving relatively high levels of quantitative and well-defined, domain-specific knowledge are associated with (higher quality) audit outcomes,” the study says.
The study – entitled “Auditor university education: does it matter?” – is co-authored by Dr Jenny Chu of Cambridge Judge Business School, and Professor Annita Florou and Professor Peter F Pope, both of the Department of Accounting at Bocconi University in Milan.
“The study is the first of its kind in a Western economy, so it should be useful to both regulators and educators,” says study co-author Dr Jenny Chu, University Senior Lecturer in Accounting and Deputy Director of the Centre for Financial Reporting & Accountability at Cambridge Judge. “The study is made possible by the fact that regulations in the UK – in contrast to many other countries – allow individuals from any degree discipline (and some without) to train to be an auditor. The UK also required disclosure of signing auditors – those who sign off on the final audit of companies – earlier than most other countries.”
The research looks at the educational background of auditors operating in the UK in the years 2011 (when disclosure of a lead auditor‘s name became mandatory) to 2014.
The study‘s initial sample included 1,107 unique signing auditors and 2,026 unique clients. Following the hand-collection of university-level educational background of signing auditors including degree subject, completion date and postgraduate studies, the final sample comprises 695 unique signing auditors, of whom only 24% held an undergraduate degree in accounting.
The study‘s results are based on two proxies of audit quality: performance-adjusted abnormal accruals and abnormal working capital accruals – which were both 2.7% lower for auditors with a quantitative education. Financial sector companies are excluded from the study because the financial information required is not comparable with other firms.